India To Tighten Budget Deficit As Bond Index Inclusion Beckons

(Bloomberg) --

Prime Minister Narendra Modi’s administration will probably shrink its budget deficit by as much as 70 basis points in the coming fiscal year, according to officials with knowledge of the matter, on path to fulfill a pledge investors are watching as Indian bonds get included into global indexes. 

The target will be between 5.2% to 5.4% of gross domestic product for the year starting April 1, according to officials with knowledge of the matter, who asked not to be named as the deliberations are private. A final decision will be taken closer to the budget presentation, due Feb. 1, they added.

Strong economic growth and an expected victory in national elections is allowing Modi to contain populist measures and focus spending mostly on building roads and power plants. His government has promised to shrink the fiscal shortfall to 4.5% of GDP in 2026.

India’s Glide Path

• Budget deficit swelled to 9.2% of GDP during the pandemic as Modi gave free food to the nation’s poor. The government has since taken steps to rein in subsidies
• Target for year through March is 5.9%; likely to project 5.2% for next year
• Government aims to shrink the shortfall to 4.5% in 2026

A finance ministry spokesperson didn’t immediately respond to an email seeking comment. Financial Express had reported on the budget deliberations earlier.

Data due Friday is expected to forecast GDP growth of 6.7% for the current fiscal year, the fastest pace among major economies.

The government is confident of meeting this year’s budget deficit target, the people said, adding that strong tax revenue and a higher-than-expected profit transfer from the central bank will boost the government’s coffers. 

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