Ahead of the FY24 Budget, finance minister Nirmala Sitharaman on Wednesday affirmed the government’s commitment to the fiscal consolidation road map and pledged more steps to further curb inflationary pressure in the economy.

Replying to a debate on the first batch of supplementary demands for grants for FY23 in the Lok Sabha, the minister asserted that the Centre would restrict fiscal deficit in FY23 within the target of 6.4% of gross domestic product (GDP). The government aims to contain its fiscal deficit at 4.5% of GDP by FY26, retaining the flexibility to alter annual deficit targets in between.

Sitharaman’s assertion came on a day when the Lok Sabha approved the government’s first batch of supplementary demand for grants, which entailed an additional net expenditure of Rs 3.26 trillion. However, the higher outgo this fiscal is expected to be offset by greater tax collection and savings by several departments in the wake of a compression of wasteful revenue spending.

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Following Opposition’s constant criticism on high inflation, the minister asserted: “We will bring it down further for the sake of common people.” The government has been constantly monitoring the prices of essential commodities and it will ensure that the poor do not have to bear any extra financial burden due to inflation, she added.

Retail inflation hit an 11-month low of 5.88% in November, having dropped below the central bank’s tolerance limit of 6% after a gap of 10 months. Wholesale price inflation, meanwhile, dropped to a 21-month trough of 5.85% in November. Of course, inflation in India is still way lower than in many countries, including advanced economies.

Sitharaman ruled out fears of stagflation, stressing that India remains one of the fastest-growing major economies in the world and inflation is contained within a reasonable level. Stagflation typically refers to a scenario of slow growth and an elevated unemployment rate accompanied by high inflation.

In October, the International Monetary Fund slashed its FY23 growth projection for India by 60 basis points from its July forecast to 6.8% but retained its FY24 prediction at 6.1%. But despite the downward revision, India’s growth rates for this fiscal and the next would still be way above the agency’s projected global economic expansion rates of 3.2% and 2.7%, respectively.

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The gross bad loan ratio of (state-run) banks, the minister said, dropped substantially to about 7.3% of their advances as of March 2022, thanks to a raft of measures initiated by the government. The ratio was as high as 14.6% as of March 2018. The most significant step announced by the government to tackle the bad loan crisis was massive capital infusion into the state-run banks.

The minister stated that the rupee is appreciating against most other currencies, and its fall against the dollar is lower than that witnessed by other currencies.

Citing a World Bank report, Sitharaman highlighted India’s robust foreign exchange reserves, which would act a cushion against any spillover from the global turmoil in the aftermath of the Ukraine war.

Deliberating on the supplementary demands, a third of which will go towards funding fertiliser subsidy this fiscal, the minister called for steps to attain self-sufficiency in the key farm nutrients. The government has sought an additional spending of `1.09 trillion for fertiliser subsidy in FY23.

Several analysts expect expenditure to finally exceed the Budget estimate of Rs 39.45 trillion by Rs 2.2-2.7 trillion this fiscal, even after factoring in savings from several schemes and heads. However, given the surge in revenue mop-up, compression of certain revenue expenditure and the higher-than-expected expansion of the nominal GDP, the government hopes to rein the FY23 fiscal deficit within the target of 6.4% of GDP.

The Centre’s net tax revenue is expected to exceed the FY23 BE of Rs 19.35 trillion by `2.5 trillion. This also means the government doesn’t need to raise its gross market borrowing in the second half of this fiscal from the proposed level of `5.92 trillion.

During the debate on the supplementary demands, Congress leader Adhir Ranjan Chowdhury had said the frequent hikes in the repo rate by the RBI to tackle inflation has “an impact on borrowers, EMIs, housing sector, equity market investors”. “Our economy is at the cusp of a stagflation — the economy is stagnant and inflation is growing,” he had claimed.