Interim budget 2024-25: Govt stays the course on fiscal consolidation path
Sitharaman said the government continues on the path of fiscal consolidation to reduce fiscal deficit below 4.5% by 2025-26.
The government is on the path of fiscal consolidation, finance minister Nirmala Sitharaman said in her interim budget speech, revising the fiscal deficit estimate for FY24 to 5.8% of GDP from 5.9% estimated in the budget last year, and reiterated her resolve to bring it below 4.5% by 2025-26 , targetting 5.1% in FY25 on the back of buoyant tax collections and better targeting of expenditure.
Recalling her budget speech of 2021-22, she said the government continues on the path of fiscal consolidation to reduce fiscal deficit below 4.5% by 2025-26.
Presenting Union Budget for FY22 on February 1, 2021 -- when global economies were devasted by the Covid-19 pandemic and government’s support to life and livelihoods saw a surge in fiscal deficit to 9.5% of GDP (2020-21 RE) -- Sitharaman said: “To ensure that the economy is given the required push… the fiscal deficit in BE (budget estimates) 2021-2022 is estimated to be 6.8% of GDP… We plan to continue with our path of fiscal consolidation, and intend to reach a fiscal deficit level below 4.5% of GDP by 2025-2026 with a fairly steady decline over the period.”
On Thursday, Sitharaman explained that the government brought down the fiscal deficit lower than expected “in spite of very challenging times” and as per the “announced consolidation path” with “transparency and prudence”, and expressed confidence in continuing the trend in future. “We are on track to meet the glide path which was set in 2021-22, and … we are well on track to meet the 4.5% fiscal deficit on or below 4.5 even by 2026,” she said. The interim budget’s statement of fiscal policy emphasised this. “The government will continue to prioritise on improving the quality of expenditure and fiscal consolidation in the ensuing financial year and beyond,” it said.
Read here: Interim Budget 2024: A little more for all labharathis? Focus on ‘core of core’ schemes
The statement went on to explain that the current year’s number was achieved on the back of high growth and prudent expenditure. “Fiscal deficit, at the end of November 2023, stood at 50.7 % of the Budget Estimates, lower than the five-year moving average of 94 % of BE during the same period. Revenue deficit for April-November 2023 is 39.8% of BE, lower than the corresponding figure of 57.8% in the previous year,” it said.
The Fiscal Responsibility and Budget Management (FRBM) Act, 2003 provides a legislative framework for reduction of deficit and thereby debt of the Union government to a sustainable level over the medium term so as to ensure inter-generational equity in fiscal management and long term macro-economic stability.
EY India chief policy advisor DK Srivastava acknowledged that the interim budget for 2024-25 accords the highest priority to restoring fiscal consolidation. “It shows the reduction in the fiscal deficit to GDP ratio by 60, 70, and 60 basis points in three consecutive years so as to reach 4.5% of GDP by 2025-26. Accordingly, the reduction in the Centre’s debt-GDP ratio from 60.8% in 2020-21 which was at its peak in the Covid year to 56% in 2024-25 (BE) is 4.8% points,” he said.
“This will have a positive impact on the ratio of interest payments to revenue receipts. In terms of the FRBM debt-GDP benchmark of 40%, the GoI [Government of India] still has some distance to cover,” he added.
PwC India partner and leader economic advisory Ranen Banerjee said that the government has walked the path of fiscal prudence. “The fiscal deficit being pegged at 5.1% for FY25 is a positive move as it will help free up space for private borrowings as they pick pace during the year, besides helping in containing inflationary pressures and supporting the bond markets.”
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