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Budget 2024: Economists at Icra and Barclays expect that the government will aim to set a fiscal deficit target of 5.3% for the upcoming fiscal year 2024-25. This will align with the fiscal consolidation plan until 2026, as the government normalises capital spending and refrains from major announcements in the interim budget before the general elections.
ET quoted Icra’s chief economist, Aditi Nayar, stating, “…major policy changes and announcements are unlikely.ICRA expects the fiscal deficit target for FY25 to be set at 5.3% of GDP, aligning with the midpoint between the anticipated 6% for FY24 and the medium-term target of sub-4.5% by FY26.” India plans a 5.9% fiscal deficit for FY24. Nayar mentioned that the government needs to reduce capital spending, with Icra predicting a ₹10.2 lakh crore capex target in FY25.
“A higher capex target would impinge on the GoI’s ability to bridge half the required fiscal consolidation in FY2025, thereby making the task of reaching medium-term fiscal deficit target by FY2026 even more challenging,” Nayar further stated.In the initial eight months of the year, capex was 59.6% higher compared to the previous year. The government has already used 58.5% of the Rs 10 lakh crore target set for FY24.
Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics at Barclays, mentioned, “While a focus on supporting growth via capex is likely to be maintained, we expect the pace of spending to slow in the FY25 budget. The distribution of capex is likely to be largely towards railways, roads, civil aviation and defence.”
According to Barclays, it is expected that the government will raise the budgetary allocations for capital expenditure-only loans to state governments to Rs 1.5 lakh crore in the fiscal year 2025, up from the Rs 1.3 lakh crore specified in the fiscal year 2024 budget.
ET quoted Icra’s chief economist, Aditi Nayar, stating, “…major policy changes and announcements are unlikely.ICRA expects the fiscal deficit target for FY25 to be set at 5.3% of GDP, aligning with the midpoint between the anticipated 6% for FY24 and the medium-term target of sub-4.5% by FY26.” India plans a 5.9% fiscal deficit for FY24. Nayar mentioned that the government needs to reduce capital spending, with Icra predicting a ₹10.2 lakh crore capex target in FY25.
“A higher capex target would impinge on the GoI’s ability to bridge half the required fiscal consolidation in FY2025, thereby making the task of reaching medium-term fiscal deficit target by FY2026 even more challenging,” Nayar further stated.In the initial eight months of the year, capex was 59.6% higher compared to the previous year. The government has already used 58.5% of the Rs 10 lakh crore target set for FY24.
Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics at Barclays, mentioned, “While a focus on supporting growth via capex is likely to be maintained, we expect the pace of spending to slow in the FY25 budget. The distribution of capex is likely to be largely towards railways, roads, civil aviation and defence.”
According to Barclays, it is expected that the government will raise the budgetary allocations for capital expenditure-only loans to state governments to Rs 1.5 lakh crore in the fiscal year 2025, up from the Rs 1.3 lakh crore specified in the fiscal year 2024 budget.
However, the statement also highlighted that “the capacity utilisation of states to undertake more spending on infrastructure projects may be nearing its limits.” Barclays anticipates that fiscal consolidation will be driven by a rise in tax revenues rather than significant reductions in expenditure.
Bajoria forecasts a 15% growth in both tax and non-tax revenues for FY25, while expecting the subsidy bill to stay elevated in the upcoming fiscal year.
“With food and LPG subsidy spending plans for the next fiscal year already announced, we expect the total subsidy bill to remain elevated in FY25,” he further added.
