Union Budget 2024-25: Centre Likely To Target Fiscal Deficit Of 4.9-5.0% Of India's GDP

Ahead of the union budget 2024-25, the rating agency Icra in a report has said that PM Narendra Modi-led central government can scale back its fiscal deficit target to 4.9 to 5.0 per cent of India's gross domestic product (GDP) for the financial year (FY) 2025.

The incremental revenue receipts of Rs. 1.2 trillion can be split to increase the revenue spending and facilitate fiscal consolidation. An even split would aid in reducing the centre's fiscal deficit to 5.0 per cent of GDP in the full budget for FY2025 against the target of 5.1 per cent of GDP mentioned in the interim budget estimates (IBE), it added.

Talking about fiscal consolidation challenges beyond FY25, Icra's projections indicate that reducing the absolute size of the fiscal deficit will be quite difficult over the next three to four years, with the decline in the fiscal deficit-to-GDP ratio largely dependent on the increase in nominal GDP. 

If the GoI continues with capex at 3.4 per cent of GDP over the medium term (in line with the FY2025 IBE), then incremental fiscal consolidation would require a sustained compression in the revenue deficit. Notably, the government has ‘on-budgeted’ a large portion of previously off-budget capex; this should be considered while determining the endpoint of the awaited fresh fiscal consolidation roadmap beyond FY2026. 

“Assuming that capex of 1.0 per cent of GDP has been brought on budget, the GoI could consider further reducing its fiscal deficit target to 4.0 per cent of GDP over the medium term, from the expected sub-4.5 per cent of GDP in FY2026,” according to Icra.

The rating agency added that the centre is likely to temper down its borrowing compared to the amount pencilled in the IBE, depending on the magnitude of the reduction in the fiscal deficit number. Based on Icra's expectations of a smaller-than-budgeted fiscal deficit at 4.9 to 5.0 per cent of GDP for FY2025, the Centre’s gross and net market issuances can be reduced by Rs 350-550 billion for H2 FY2025, thereby auguring well for G-sec yields, along with the demand boost for G-secs owing to the bond index inclusion.

The pre-budget consultations for the union budget 2024-25 that started on 19 June 2024 under the chairmanship of Union Finance Minister Nirmala Sitharaman concluded on 5 July 2024. During the in-person consultations, more than 120 invitees across ten stakeholder groups, including experts and representatives from farmer associations and agriculture economists; trade unions; education and health sector; employment and skilling and MSME among others participated in the meetings.

In the course of the consultations, Sitharaman thanked the participants for sharing valuable suggestions and assured experts and representatives that their suggestions would be carefully examined and considered while preparing the budget 2024-25. 

Notably, under the Narendra Modi 3.0 government, Sitharaman will present the FY 2024-25 full budget to the Lok Sabha on 23 July. Parliamentary Affairs Minister Kiren Rijiju took to social media site X (formerly Twitter) and wrote, “Hon’ble President of India, on the recommendation of Government of India, has approved the proposal for the summoning of both the Houses of Parliament for the Budget Session, 2024 from 22nd July 2024 to 12 August 2024 (subject to exigencies of Parliamentary business). Union Budget, 2024-25 will be presented in Lok Sabha on 23 July 2024.”