Centre Aims for Ambitious Medium-Term Fiscal Deficit Targets

The Indian government is poised to surpass its fiscal consolidation targets for FY25 and FY26, driven by robust revenue collections and prudent expenditure management, according to sources. This outlook aligns with recent interim budget projections and current fiscal performance.

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Revised Fiscal Deficit Targets

The interim budget in February 2024 set fiscal deficit targets at 5.1% of GDP for FY25 and 4.5% for FY26. Current economic indicators suggest these targets are achievable, barring significant disruptions.

Fiscal Performance and Revenue Trends

In FY24, the fiscal deficit improved to 5.63% of GDP, better than the 5.9% target. Higher-than-expected receipts, including a record ₹2.11 trillion dividend from the RBI, contributed to this improvement. Total receipts for FY24 were ₹27.88 trillion, surpassing estimates, while total expenditure was ₹44.43 trillion, slightly below estimates. Interest payments and major subsidies accounted for significant portions of this expenditure.

Debt and Deficit Dynamics

A higher fiscal deficit increases debt and interest payments, which can strain the economy. Reducing the fiscal deficit is crucial for economic stability and encouraging private investment. The government remains focused on fiscal consolidation, with limited changes expected in overall budget allocations.

Infrastructure and Economic Growth

The interim budget increased infrastructure project allocations to ₹11.11 trillion for FY25, up from ₹9.50 trillion in FY24. Total expenditure is projected to decrease to ₹30.80 trillion in FY25 from ₹44.90 trillion in FY24. The Indian economy, which grew by 8.2% in FY24, is projected to grow by 7.2% in FY25, driven by improving demand conditions and favorable monsoon forecasts.

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The government's commitment to fiscal consolidation, supported by higher revenue collections and cautious spending, positions it to surpass fiscal deficit targets for the coming years, ensuring sustainable economic growth and stability.