The government is planning to decrease its budget deficit by at least 50 basis points in the fiscal year 2024-25, aiming for a target lower than the current year’s 5.9 per cent of gross domestic product (GDP). Simultaneously, it also plans to boost capital spending by up to 20 per cent, according to a Reuters report citing government officials.
The success of reducing the fiscal deficit while increasing capital spending depends on increased revenues and efforts to cut subsidies, as mentioned by Devendra Pant, an economist at India Ratings. Despite being an unconventional move for a government heading into a national election, Prime Minister Narendra Modi is expected to secure an unprecedented third term.
Finance Minister Nirmala Sitharaman is scheduled to present the budget for the fiscal year 2024–25 on February 1.
The proposal to reduce the fiscal deficit by a minimum of 50 basis points is currently being discussed, along with other potential scenarios for the upcoming budget year starting in April, according to government sources. Both officials express confidence in meeting the current year’s 5.9 per cent fiscal deficit target, set to conclude on March 31.
The government’s ambitious goal is to increase capital spending on infrastructure to around Rs 12 lakh crore, compared to the previous year’s plan of Rs 10 lakh crore. India’s economic growth in recent years has been driven by the government’s commitment to boosting infrastructure spending, making it one of the fastest-growing economies globally.
A significant reduction in the fiscal deficit is expected to reassure foreign investors and rating agencies. There has been scepticism about India achieving its objective of narrowing the deficit to below 4.5 per cent of GDP in the next two years. The government is aware of this target, given the scrutiny from new investors evaluating the country’s debt levels following their inclusion in the JPMorgan and Bloomberg emerging market indexes.
(With Reuters inputs)
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