Fiscal deficit likely to be reduced to 4.9-5% of GDP for the financial year

Fiscal Year 2024: The government is likely to reduce the fiscal deficit for this financial year to 4.9-5 per cent of GDP in the upcoming budget, which will be helped by a rise in revenue. The government had estimated the fiscal deficit for the current financial year at 5.1 per cent when it presented the interim budget in February. “The central government can set the fiscal deficit target at 4.9-5 per cent, lower than the estimated 5.1 per cent of GDP, without compromising on the capital expenditure target of Rs 11.1 crore,” ICRA Chief Economist Aditi Nair told PTI. Finance Minister Nirmala Sitharaman will present the full budget on July 23. This will be her seventh consecutive budget. The goal of this budget is to lay the foundation towards India becoming a developed nation (Developed India) by 2047. The government had achieved a fiscal deficit of 5.6 per cent of GDP during the last financial year. “There is also a high possibility of net market borrowing coming down by Rs 35,000-55,000 crore against the provisional budget estimate of Rs 11.8 lakh crore for the current fiscal, which will bode well for demand as well as yields, especially for G-secs, due to their inclusion in the J.P. Morgan Government Bond Index,” he said. The incremental revenue of Rs 1.2 lakh crore can be split between raising revenue expenditure and facilitating fiscal consolidation, he said, adding that the government can use it to stimulate consumption by providing some income tax concessions. He further said that reducing the absolute size of the fiscal deficit in the next 3-4 years will be quite difficult as the decline in the fiscal deficit-to-GDP ratio will largely depend on the growth in nominal GDP. If the government continues to maintain capital expenditure of 3.4 per cent of GDP over the medium term (in line with the FY25 interim budget), incremental fiscal consolidation will require a continued compression of the revenue deficit, it said. In particular, it said, the government has a large share of capital expenditure “on-budget” that was previously off-budget; this should be considered when determining the end point of the new fiscal consolidation roadmap expected beyond FY26. Assuming that capital expenditure of about 1 per cent of GDP is budgeted, the government may consider reducing its fiscal deficit target to 4 per cent of GDP over the medium term, which is expected to be as low as minus 4.5 per cent of GDP in FY26, it added.