Budget 2024: Government Likely To Set 5.3% Fiscal Deficit Target For FY25, Say Economists

Aided by robust economic growth and a buoyant revenue stream, economists expect the government to meet its current fiscal deficit target of 5.9% and peg the deficit target for FY25 at 5.3%.

The fiscal deficit target for the year will be met on positive revenue inflows, like higher tax collections and increased dividends received from the Reserve Bank of India, according to Kaushik Das, managing director and chief economist-India and South Asia, Deutsche Bank AG.

The growth came in stronger than expected and the capital expenditure will be close to Rs 10 trillion this year, Das told NDTV Profit on the Budget 2024: The Take Off show. "Overall, it is not a big challenge to meet the fiscal deficit target."

In the interim budget, that is going to be presented in Parliament on Feb. 1, all eyes will be on the extent of fiscal consolidation that can be done next year, according to Rahul Bajoria, chief India economist at Barclays Bank Plc. He expects a deficit target of 5.3% for the next financial year.

The fiscal consolidation will be contingent on how serious the government is about the medium-term fiscal target, according to Aurodeep Nandi, economist and vice president at Nomura India.

The quality of fiscal spending has improved significantly, with the government pushing more capex and cutting revenue expenses, Das said. "The only risk is from the geopolitical front, and with the current assumptions, we can get to the 5.3% fiscal deficit target for FY25," he said. After the assembly elections, Das expects private investment to take off along with the government investment.

On the expenditure front, Das expects capital expenditure to the tune of Rs 11 trillion, as compared with Rs 10 trillion previously, but revenue expenditure will rise by a mere 3-4%, he said.

Key Spending Priorities

According to Bajoria, an increase of cash transfers to women, and increased food and fertiliser subsidies could be on the cards. "There is a clear bias towards supporting consumption and income, largely in rural areas."

It is possible that a large part of the capex spending programme could be diverted towards railway infrastructure, he said.

The rural economy has been performing below its potential, Nandi said. "While the terms of trade have improved, they are not at historically good levels... On the positive side, we are seeing lower inflation."

There is going to be a focus on target infrastructure, income support schemes for farmers, with schemes like MGNREGA taking centre stage, Nandi said. "The pipelines are there, they just need to put more money."

The government's disinvestment ambitions have not performed well last year, but these things take time, according to Das. Non-tax revenue has and will remain strong, he said.

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