Budget 2024: Fiscal Deficit Numbers Look More Realistic, Say Economists

Interim Budget 2024: Devendra Kumar Pant, Chief Economist at India Ratings, highlights that the interim Budget revolves around two key themes: fiscal consolidation and focus on agriculture areas

Interim Budget 2024, announced today, is hailed by analysts and economists for the fiscal projections it announced. They said that the lower fiscal deficit forecast shows that even in the election year, the government is serious about fiscal consolidation and that the numbers shared by Finance Minister Nirmala Sitharaman seem achievable.

Devendra Kumar Pant, Chief Economist at India Ratings, highlights that the interim Budget revolves around two key themes: fiscal consolidation and an increased focus on agriculture/rural areas. This shift aims to address, to a certain extent, the imbalanced benefits of economic growth, currently favouring upper-income and urban households.

“The projected fiscal deficit numbers for FY24 and FY25 suggest that the government is serious about achieving the fiscal consolidation path of 4.5 per cent fiscal deficit by FY26, and given the nominal GDP growth assumption and revenue buoyancy, the target appears plausible,” Pant said.

“The net market borrowing of Rs 11.75 lakh crore in FY25 augurs well for the bond market and is likely to have a favourable impact on 10-year G-sec yields, he added.

The chief economist at Icra Ratings, Aditi Nayar, said the higher than expected capex (Rs 10 lakh crore vs Rs 9.3 lakh crore for FY24, and Rs 11.1 lakh crore vs 10.2 lakh crore for FY25 and lower than projected fiscal deficit of 5.8 per cent for FY24 vs 6 per cent earlier, and 5.1 per cent for FY25 vs 5.3 per cent seen earlier) suggest that the quality of expenditure is going to be healthier than previous years.

“Faster fiscal consolidation and a dip in borrowings will help cool GSec yields further over the coming year, as long as the estimates for revenue and capital receipts appear credible as the year progresses,” she added.

“The revised FY24 budget estimate has indicated higher central tax devolution compared to the budget estimate. This implies that Rs 3.6 lakh crore will be released in Q4, which is 5 per cent higher year-on-year, which provides a further downside to state bond issuance in the current quarter, which was indicated at Rs 4.1 lakh crore,” she said.

Yezdi Nagporewalla, Chief Executive at KPMG India; “The interim Budget has ensured to not be swayed by short-term political compulsions and ensuring to keep the fiscal deficit in check. It also shows the government's seriousness about treading on the green growth path commitment to equitable and inclusive growth focusing on the poor, women, youth and farmers, infrastructure development and fiscal prudence. These are likely to create new opportunities, uplift demand, and unlock multipliers for the economy.”

“And the biggest highlight is fiscal rectitude with fiscal deficit estimate for FY25 at 5.1 per cent,” he added.

Radhika Rao, Senior Economist at DBS Bank, said, “The interim Budget has prioritised pragmatism over populism by focusing on higher capex and faster fiscal consolidation. The math not only projects a better-than-budgeted deficit target for FY24 but also pegs the FY25 goalpost at a narrower 5.1 per cent against expectations of 5.3-5.4 per cent.”

“By extension, gross and net borrowings are much lower than FY24, giving significant relief to the debt market, which will help keep a lid on the cost of borrowing and crowd-in the private sector. Despite the welfare focus on women, youth, poor as well as farmers, the government has refrained from outright populism while maintaining a continued emphasis on capex to improve the quality of spending,” Rao said.