Indian Govt To Likely Narrow Fiscal Deficit In Upcoming Budget: Reuters Poll

The poll showed that the upcoming Interim Budget, set to be announced on February 1, is projected to target a narrowing of the fiscal deficit as a percentage of the GDP to 5.30 per cent in FY2025

The Indian government would aim for a lower fiscal deficit in the upcoming 2024-25 fiscal year, despite increasing the capital expenditure to an all-time high, a Reuters poll of economists revealed. The poll found that infrastructure investment would remain a priority for the government. 

The poll noted that the Bharatiya Janata Party (BJP) is estimated to win a third term in the upcoming elections, and the budget is expected to aim for a balance between populist measures and fiscal prudence. As such, the government intends to reduce the fiscal deficit to 4.50 per cent of the GDP by the end of the 2025-26 fiscal year against 5.90 per cent in the current fiscal year. 

The poll conducted by Reuters from January 10 to 19 this year included 41 economists and showed that the upcoming Interim Budget, scheduled to be announced on February 1, is projected to target a narrowing of the fiscal deficit as a percentage of the GDP to 5.30 per cent in the upcoming 2024-25 fiscal year. 

Alexandra Hermann, lead economist, Oxford Economics, noted, “To achieve the (2025-26) 4.5 per cent deficit target, total expenditures would need to rise by no more than 7 per cent per FY on average...meaning an even more aggressive cut to expenditures is likely in the coming years.”

Notably, capital expenditure in the current fiscal year has already soared over 33 per cent to cross Rs 10 trillion, and is further expected to increase 15 per cent in the succeeding fiscal year and touch Rs 11.50 trillion including projections of a hike in private investment. Of late, the country’s economic expansion has been driven by government investment. 

“Continued and rapid improvement in India's infrastructure will be paramount to reviving the private investment cycle. But to leverage India's huge potential and ensure sustainable and inclusive growth over the medium to longer term, human capital levels will need to improve, which is why spending on education should be the main priority,” Hermann noted. 

None of the economists pointed out education and healthcare as the main priorities in the upcoming budget. Amongst the survey respondents, 34 of them noted that infrastructure investment would remain the top priority, while 17 of them said rural development would assume the most importance. About 16 economists stated job creation as the major point of focus for the forthcoming budget, as employment generation has been unable to match the pace of new additions in the workforce every year.

The survey respondents also didn’t see welfare schemes to be expanding further with the deficit being in the focus and the gross borrowing of Rs 15.60 trillion is also estimated to remain unchanged majorly from the current fiscal projection. 

Kunal Kundu, India economist, Societe Generale, stated, “There are growth challenges that we remain wary of. Private non-infrastructure business capex is conspicuous by its relative absence.” He pointed out that aggregate domestic demand remained modest, while demand from the wealthy continued to remain in the headlines. “Stress is more visible in the rural areas as the informal sector continues to struggle, especially MSME (micro, small and medium enterprises) which are the biggest job generators,” he added.