Even as global rating agencies Moody’s and Fitch see upside risks to the Centre’s fiscal deficit target of below 4.5% of GDP for FY26, the government on Saturday allayed these concerns, saying higher growth will facilitate the proposed fiscal consolidation.
The Budget proposals for the next financial year, for which the fiscal deficit is projected at 5.9% against 6.4% this fiscal, aim to achieve the twin objectives of spurring economic growth and fiscal consolidation, finance minister Nirmala Sitharaman said at a post-Budget outreach event in Mumbai.
“Growth is the main focus. We want to sustain the recovery, sustain growth,” she said.
On the roadmap for fiscal consolidation, finance secretary TV Somanathan said the government will focus on broadening revenues, curbing unproductive expenditure and expanding the denominator by achieving higher GDP growth to meet the medium-term fiscal goal. “The commitment to reach (a fiscal deficit of) below 4.5% has been reiterated and the strategy to reach it will involve a combination of these three things,” Somanathan said.
Speaking at the event, chief economic advisor V Anantha Nageswaran said: “if there is a steady nominal GDP growth of 10%, which is not a very high number, that would bring about a meaningful reduction in the fiscal deficit and debt parameters.”
Sitharaman said the Budget has made a record provision of `10 trillion for capex in FY24 (compared with `7.28 trillion in FY23) as Prime Minister Narendra Modi desired to continue with the elevated public capital expenditure to boost growth. “Mumbai (Corporate India) should be liking it (the proposals),” the minister said, as commentators are hoping the sustained higher public capex would finally engender a robust private investment cycle and propel growth.
Jeremy Zook, director and primary sovereign analyst for India at Fitch Ratings, had said earlier the week, “We still believe it will likely be challenging for the government to achieve its 4.5% of GDP deficit target by FY26, as achieving this target implies an additional 0.7% of GDP consolidation in each of the subsequent two fiscal years (after FY24).”
Given the still uncertain outlook for the global economy and commodity prices, there is potential risk to the deficit target before the next general elections, “in particular in the event that a shock such as another commodity price spike leads to pressures for sustained subsidy spending,” Zook had said.
Similarly, Christian de Guzman, senior vice-president at Moody’s, too, saw some risks in realising the 4.5% target. “The current pattern suggests that perhaps there could be some upward pressure on expenditure, especially if they (government) continue with this focus on capex,” Guzman told Reuters.
India’s nominal GDP growth is budgeted to slow down to 10.5% in FY24, against an estimated 15.4% in FY23. The deceleration will be mainly driven by the potential drag-down impact of a global growth slowdown in the wake of the interest rate tightening by key central banks, and a resultant moderation in international commodity prices.