MUMBAI: The Centre further pared the fiscal deficit target to 4.9% of GDP for 2024-25 in the full Budget presented on Tuesday from 5.1% projected in the interim Budget in February as it used Rs 1.3 trillion extra dividends from the Reserve Bank of India to trim borrowings as well as provide additional funds for development and welfare schemes.
Moving away from the current fiscal consolidation path driven only by fiscal deficit targeting, the Budget announced a new regime which will be based on an annual reduction in the debt-GDP ratio FY27 onwards.
This will essentially keep the fiscal deficit below 4.5% of GDP to serve the needs of the fastest-growing major economy amid global uncertainties.
The move has given burial to the FRBM framework which was fixated on the central government to limit the fiscal deficit to up to 3% of GDP and limit the central government debt to 40% of GDP.
“The fiscal consolidation path announced by me in 2021 has served our economy very well, and we aim to reach a deficit below 4.5% next year. The government is committed to staying the course. From 2026-27 onwards, our endeavour will be to keep the fiscal deficit each year such that the central government debt will be on a declining path as percentage of GDP,” Finance Minister Nirmala Sitharaman said.
The Centre will endeavour to maintain strong fiscal support for infrastructure over the next five years, in conjunction with the imperatives of other priorities and fiscal consolidation, the minister said.
“This will allow government the flexibility to chart an appropriate fiscal course that builds in higher capital spending as well as support to meeting the climate goals, in a fairly uncertain global environment,” Icra chief economist Aditi Nayar said.
For FY25, the Budget size has been enhanced by Rs 55,000 crore from the Interim Budget estimate to Rs 48.2 trillion while the fiscal deficit has been cut by Rs 72,000 crore (0.22% of GDP) over the interim estimate to Rs 16.13 trillion.
This was possible due to a sharp upward revision in non-tax receipts to Rs 5.45 trillion from Rs 4 trillion, on account of Rs 1.3 trillion additional dividend than factored in the interim budget and an extra Rs 8,000 crore from CPSE dividends.
The government has kept the allocation for capital expenditure at the Interim Budget level of Rs 11.11 trillion for FY25 compared with Rs 9.49 trillion in FY24.
However, it has enhanced the outlay for 50-year interest-free capex loans to states by Rs 20,000 crore to Rs 1.5 trillion compared with Rs 1.3 trillion in the Interim Budget, to incentivise states to carry out next-generation reforms to boost economic growth.
The GDP for Budget FY25 is estimated at Rs 326.37 trillion which is 10.5% over the Provisional Estimates of FY24.
In absolute terms, it was marginally lower than Rs 327.72 projected in the Interim Budget.
The net central government debt (excluding investment in state government securities) is estimated to come down to 55.9% of GDP in FY25 from 57.1% in FY24 revised estimate.
The sharp cutback in net borrowings and a cut in fiscal deficit can have a positive impact on interest rates and the attitude of foreign investors and rating agencies towards India.
There exists a chance of a rating upgrade for India a few months down the line, Icra said.
A gradual reduction in the debt level will reduce the Centre’s interest liabilities and give space for more development spending.
In FY25, interest payment bill is estimated at Rs 11.63 trillion, which at 3.6% of GDP and is at par with FY24 trends.
“Overall, the Budget is credit positive as it is expected to keep fiscal deficits at around 4.9% of GDP, lower than the 5.1% of GDP announced in the Interim Budget. This places the government’s goal of achieving a 4.5% of GDP deficit by fiscal 2025-26 within reach,” Moody’s Ratings said
Source: The Financial Express
Budget Focuses On Review Of Agri Research Setup, New Phase Of Rural Roads 