Government Poised to Lower Fiscal Deficit to 4.9-5% in Upcoming Budget

The Indian government plans to lower the fiscal deficit to 4.9-5% of GDP for the current financial year in the upcoming Budget, aided by revenue buoyancy. This reduction, from the interim Budget's 5.1% projection, aims to balance maintaining capital expenditure and reducing market borrowings without compromising growth targets.

The Indian government is expected to lower its fiscal deficit to 4.9-5% of GDP for the current financial year in the upcoming Budget, driven by increased revenue.

Initially, the fiscal deficit was estimated at 5.1% when the interim Budget was presented in February. According to ICRA Chief Economist Aditi Nayar, the government will aim for a 4.9-5% deficit target without compromising the capital expenditure target of Rs 11.1 lakh crore.

Finance Minister Nirmala Sitharaman, presenting her seventh consecutive Budget on July 23, aims to set a foundation for India's development by 2047. Last year, the fiscal deficit stood at 5.6% of GDP. Nayar also noted the likelihood of reducing market borrowings for the current financial year by Rs 35,000-Rs 55,000 crore, positively impacting yields and demand for G-secs.

The government could use the incremental revenue of Rs 1.2 lakh crore for revenue spending and fiscal consolidation, possibly providing income tax sops to spur consumption. However, reducing the absolute fiscal deficit size in the next 3-4 years will be challenging, partly due to the need for increased nominal GDP.

Nayar emphasized the importance of sustained capex and compressing the revenue deficit to achieve fiscal consolidation. She highlighted the government's effort to bring previously off-budget capex onto the budget, suggesting potential for further reducing the fiscal deficit target to 4% of GDP in the medium term.

(With inputs from agencies.)