Budget 2025: Fiscal Deficit Target Set At 4.4% Of The GDP
For FY25, the government has revised the target to 4.8% of the GDP.
India aims to continue on its fiscal consolidation path in the ongoing financial year, after bettering its deficit target for the current fiscal.
The union government will target a fiscal deficit of 4.4% of the GDP for FY26, Finance Minister Nirmala Sitharaman announced in her budget speech on Saturday. For FY25, the government has revised the target to 4.8% of the GDP. This was compared to a revised target of 4.9% in the budget in July. This, too, was lower than the target of 5.1% set in the interim budget. The lower than previously targeted fiscal deficit for FY25 was on account of a slowdown in spending, led by lower government capex.
The fiscal deficit had risen from 3.8% of the GDP in FY20 to 9.5% in FY21, amid increased development and welfare-related expenditures during the Covid-19 pandemic.
Total receipts for FY25 came in at Rs 31.47 lakh crore rupees, with expenditure pegged at Rs 47.16 expenditure, including a revised capex outlay of Rs 10.18 lakh crore, bringing the fiscal deficit to 4.8% of the GDP.
For FY26, gross borrowings are pegged at Rs 14.82 lakh crore for FY26, modestly higher than the budget estimate of Rs 14.13 lakh crore, as estimated in FY25. Net borrowings are pegged at Rs 11.54 lakh crore compared to Rs 11.63 lakh crore in FY25.
Going forward, the government will target a debt driven fiscal framework, rather than one anchored on the fiscal deficit, it had stated in its last budget. A potential shift in the fiscal objectives, away from deficits to debt can have several implications.
While there will be an implied need for further fiscal consolidation, expenditure mix and the pace of economic growth would also be the key, explained Rahul Bajoria, chief India economist at BofA. "Going ahead, the primary deficit could become the de-facto operational parameter, rather than the fiscal deficit, as the government seeks to move away from debt financed consumption," he said. However, it would also mean that the need to balance monetary conditions, which anchors borrowing costs, nominal growth which drives revenues and denominator of debt, and fiscal prudence which reduces primary deficits, would be critical for the success of the new framework, he added.
(This is a developing story).
