Ahead of the Budget for FY24, the finance ministry on Friday said India needs to stay the course on fiscal consolidation at the general government level, indicating that states, too, must adopt fiscal prudence after stepped-up spending during the pandemic.

The country should focus on medium-term challenges such as securing technology and resources for energy transition and skilling its youth for the 21st-century economy, the ministry said in a report.

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Finance minister Nirmala Sitharaman last week affirmed the Centre’s commitment to the fiscal consolidation roadmap.

The Centre aims to contain its fiscal deficit at 4.5% of GDP by FY26, against the targeted 6.4% for FY23. For states, the Finance Commission had recommended a fiscal deficit limit of 4% for FY22, 3.5% in FY23 and 3% during FY24-26. If a state is unable to fully utilise the sanctioned borrowing limit during the first four years (FY22-FY25), it could avail the unutilised borrowing amount in subsequent years (within FY22-FY26). Rating agency Fitch this week forecast a gradual narrowing of the general government deficit to 9.2% of GDP in FY24 and 8.7% in FY25.

In its report for November, the department of economic affairs (DEA) said the growth momentum, witnessed in the second quarter, seems to have been sustained in the third quarter as well. In the first half, the economy grew 9.7%, albeit on a favourable base. “There is cautious optimism as the slowdown in global economic activity is not mirrored in India’s performance of various high-frequency indicators,” it added. However, it called for stepped-up vigilance, as global economic developments are expected to complicate the outlook further in 2023.

The moderating in price pressure in November and easing inflation expectations in the RBI survey “augur well for augmenting consumption in rural and urban regions in the upcoming months”, the report said, indicating that the sticky core inflation could also moderate in the coming months.

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Core inflation has held steady at about 6% in the consumer price index even though retail inflation dropped below the central bank’s tolerance limit of 6% in November after a gap of 10 months.

Even as goods exports slow, the downside to a widening current account deficit is expected to be limited by a robust services export performance through the rest of the year and by inward remittances (the latter are expected to touch as high as $100 billion this fiscal, as per the World Bank), the report said.

The report stated that the country has identified several priorities for its G20 presidency — inclusive, equitable and sustainable growth; LiFE (lifestyle for environment); women’s empowerment; digital public infrastructure and tech-enabled development in health, agriculture, education, commerce, skill-mapping, and culture and tourism; climate financing; circular economy; global food security; energy security; green hydrogen; disaster risk reduction and resilience; developmental cooperation; fight against economic crimes; and multilateral reforms. India assumed the G20 presidency in December.