Reduction in fiscal deficit in the next financial year would be backed by a reduction in subsidy spending, though capital and welfare expenditures could go up as the government prepares the ground for next general elections and assembly elections in multiple states, economists said.
The overall tax receipts for FY24 are seen lower than 2022-23 and market borrowings are likely to stay high, they said.
State Bank of India and rating agency Crisil see slightly lower fiscal consolidation in FY24 and have pegged the estimate at 6% of GDP. Most others see FY24 fiscal deficit at 5.75-5.9% of GDP.
A moderation in global commodity prices is likely to create fiscal space but economists expect higher rural and welfare spending.
Finance minister Nirmala Sitharaman will present the budget for FY24 on February 1.
“For FY24, we forecast the consolidated deficit will be 9.3% of GDP. For the central government, we expect a fiscal deficit of ₹17.7 lakh crore to be proposed (5.8% of GDP), which would allow the government to raise spending to around ₹46 lakh crore,” said Rahul Bajoria, managing director and head of EM Asia (ex-China) economics of Barclays.
Goldman Sachs emphasised the need for India to return to the fiscal consolidation path for macroeconomic stability but cautioned that higher government borrowing could increase bond yields and increase funding costs for corporates. It expects India to consolidate fiscal deficit by 50 bps to 5.9% of GDP in FY24.
The government aims to lower the fiscal deficit to 4.5% by 2025-26.
One of the key pillars of India’s macro stability is the gradual reduction in fiscal deficit, which also helped in reducing the current account deficit, checking inflationary pressure, and keeping the rupee stable, Goldman Sachs said.
HDFC Bank pegged deficit at 5.8%.
Pragmatic Budget, High Borrowing:
India’s FY23 gross market borrowing is estimated at ₹14.2 lakh crore and economists see it rising to ₹15-17 lakh crore in 2023-24.
Nomura expects a 5.9% fiscal gap in FY24, supported by lower subsidy spending and a ramp up in capital expenditure. “Higher rural spending and some income tax tweaks are possible, but we are not pencilling in a populist budget,” it said.
FY24 budget follows a turbulent year for India’s fiscal dynamics, where a surge in subsidies due to the Russia-Ukraine conflict was offset by higher tax collections, Barclays said, adding that the government has also slowly but steadily been withdrawing pandemic-related emergency measures, which should add to fiscal sustainability over the medium term.
The government last month got parliamentary approval for gross additional expenditure of Rs 4.36 lakh crore for fertiliser and food subsidies, payments to the oil marketing companies for domestic LPG operations, and additional funds for the Mahatma Gandhi National Rural Employment Guarantee Scheme.
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