The interim Budget is likely to peg the fiscal deficit for FY24-25 at 5.3-5.4 per cent of GDP (Gross Domestic Product), sources in the government have said. This is possible through higher collection of taxes and cuts in some revenue expenditure.
Though the government is hopeful of meeting the fiscal deficit target of 5.9 per cent for the current fiscal, contraction in nominal growth as projected in the first advance estimate has cast a doubt on this probability.
Fiscal deficit is the difference between income and expenditure of the government.
Fiscal Prudence
Lowering the target is critical for achieving the 4.5 per cent target by FY25-26. While announcing the budget for the current fiscal, the government did not outline any medium term fiscal deficit citing continued global uncertainty.
Instead, as announced in the Budget Speech of FY21-22, the government would continue on the broad path of fiscal consolidation to reach a fiscal deficit to GDP level below 4.5 per cent by FY25-26.
Aditi Nayar, Chief Economist with ICRA said that with the assumption of a sharper expansion in revenue receipts (9.5 per cent) compared to revenue expenditure (3.9 per cent), the revenue deficit is expected to entail a substantial correction to ₹7.9-lakh crore (2.4 per cent of ICRA’s GDP estimate) in FY25 from the ₹9-lakh crore (3 per cent of GDP) projected for FY24.
“Taking into account a modest target for disinvestment receipts and a 10 per cent expansion in capex, ICRA expects the GoI to target a fiscal deficit of 5.3 per cent of GDP in FY25,” she said.
Such a number would mean an absolute fiscal deficit figure of ₹17.1-lakh crore during the next fiscal as against the estimated ₹17.9-lakh crore of current fiscal.
“As per ICRA’s estimates, every 10 bps of expansion in the fiscal deficit-to-GDP ratio would allow for additional capex of ₹32,400 crore. However, this would make the task at hand in FY26 more challenging,” Nayar added.
As far as current fiscal is concerned, first advance estimate has lowered nominal GDP to 8.9 per cent. Considering fiscal deficit at the end of November at at ₹9.06 lakh crore or 50.7 per cent of BE and revised GDP number, business as usual is likely to take deficit to little over 6 per cent.
However, according to SBI research report, if the government curtails spending by over ₹37,000 crore, then 5.9 per cent target could be achieved.
