Union Budget 2024: Govt Likely To Lower Fiscal Deficit In The Election Year

The report states that the government aims to bring down the fiscal deficit to 4.50 per cent of GDP by the end of the 2025-26 fiscal year

With anticipation of a boost in private investment, capital spending has already increased by more than 33 per cent this fiscal year

Source : Getty

The Indian government is expected to aim for a lower deficit in the 2024-25 fiscal year even after lifting capital expenditure to an all-time high, states a Reuters poll of economists. In addition, it also reveals that infrastructure investment would be a priority for the government.

This year's budget is expected to balance populist measures and fiscal prudence amid the election year. It is also predicted that Prime Minister Narendra Modi-led Bharatiya Janata Party (BJP) is anticipated to win a third term as well.

The report states that the government aims to bring down the fiscal deficit to 4.50 per cent of GDP by the end of the 2025-26 fiscal year from 5.90 per cent in the current financial year to the end of March 2024.

A previous poll conducted by Reuters showed that the 2024 budget is expected to target a narrowing of the fiscal deficit as a percentage of GDP to 5.30 per cent in the fiscal year 2024-25.

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

With anticipation of a boost in private investment, capital spending has already increased by more than 33 per cent this fiscal year to over 10 trillion rupees ($120 billion) and is expected to rise by 15 per cent, reaching Rs 11.50 trillion.

"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 said.

However, none of the economists participating in the poll responded to a follow-up question about healthcare and education as the top two budget priorities. The majority of respondents indicated that infrastructure investment (34) would be a top priority after job creation (16) and rural development (17), states the report.

With the deficit in focus, welfare schemes are not likely to grow much, and gross borrowing of 15.60 trillion rupees is anticipated to remain mostly constant from the projection for the current year.

"There are growth challenges that we remain wary of. Private non-infrastructure business capex is conspicuous by its relative absence," said Kunal Kundu, India economist at Societe Generale. In addition, he also pointed to modest aggregate domestic demand while noting demand from the wealthy continued to make headlines, as per the report.

"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.