PremiumThe upcoming Union Budget 2024 is expected to meet the fiscal deficit target of 6.4%. Furthermore, Wall Street brokerage Goldman Sachs expects FM Nirmala Sitharaman to announce a 50 bps reduction in the fiscal deficit target for FY24. India's finance minister will present the country's Budget for 2023-24 on February 1st.
As per the Goldman Sachs report, the government is likely to meet the budgeted fiscal deficit target of 6.4% of GDP ---- with expenditure compression to the tune of 0.3% from the budgeted spending to cushion the incremental subsidies due to the commodity shock, as per PTI report.
Further, the brokerage believes the finance minister to budget for a 50 bps reduction in fiscal deficit for FY24 at 5.9 per cent which will be driven by a reduction in food and fertiliser subsidies and project tax revenues to remain buoyant in the year.
The optimism is derived from direct and indirect taxes which are performing well ahead of the budget estimates. This is despite the government missing out on the disinvestment target.
Recently, the FM stated that she would meet the fiscal targets as budgeted on the back of more than budgeted tax collections.
Also, Goldman Sachs expects the budget to stay on its medium-term fiscal consolidation path. Other factors that the brokerage expects Budget to focus on are — weigh spending priorities on CAPEX, manufacturing incentives, subsidies, and welfare, and limit its market borrowing to the extent that it does not hurt markets.
Goldman emphasized the need for India to return to the path of fiscal consolidation to ensure macroeconomic stability and cautioned that higher government borrowing could increase bond yields and increase funding costs for corporates, crowing private investment. The government aims to lower the fiscal deficit to 4.5% of GDP by 2025-26.
Goldman Sachs said in report ‘India’s fiscal outlook: FY24 budget to balance spending priorities and fiscal prudence.’
India's fiscal deficit hit 59% of the budgeted estimates in the first eight months of FY23, led by sharp growth in capital expenditure, moderate expansion in tax revenues, and higher transfers to states.
Between April to November 2022, the fiscal deficit stood at 58.9% of the budget target of ₹16.6 trillion set for FY23, against 46.2% reached in the same period a year ago.
Notably, in 2020-21, the fiscal deficit scaled up to a record 9.3% from the previous year's 4.6% due to the Coronavirus pandemic.
In the Budget 2022-23 announcement, Sitharaman stated that the fiscal deficit in 2022-23 is estimated at 6.4% of GDP which is consistent with the broad path of fiscal consolidation announced last year to reach a fiscal deficit level below 4.5% by 2025-26. In value terms, the fiscal deficit is estimated at ₹16,61,196 crore by 2022-23 end.
Furthermore, the government ensured that they remain committed to strong macroeconomic fundamentals and financial stability. It highlighted that the Indian economy has performed better than other major economies.
(With inputs from PTI).