The budget would peg FY24 financial gap at 5.8-6% of GDP, say experts

The budget would peg FY24 financial gap at 5.8-6% of GDP, say experts

The fiscal deficit for 2023-2024 is anticipated to be between 5.8% and 6% of GDP in the forthcoming Union budget since the government has continued with fiscal consolidation despite demands to increase spending, according to experts. According to them, the Center is anticipated to adhere to the 6.4% of GDP fiscal deficit projection that was included in the budget. Reduction in fiscal deficit in the next financial year would be backed by a reduction in subsidy spending, though capital and welfare expenditures could go up as the government prepares the ground for the next general elections and assembly elections in multiple states.

The overall tax receipts for FY24 are seen lower than 2022-23 and market borrowings are likely to stay high, they said. Moderation in global commodity prices is likely to create fiscal space but economists expect higher rural and welfare spending. Finance minister Nirmala Sitharaman will present the budget for FY24 on February 1.

"For FY24, we forecast the consolidated deficit will be 9.3% of GDP. For the central government, we expect a fiscal deficit of Rs 17.7 lakh crore to be proposed (5.8% of GDP), which would allow the government to raise spending to around Rs 46 lakh crore," said Rahul Bajoria, managing director and head of EM Asia (ex-China) economics of Barclays.

Goldman Sachs emphasized the need for India to return to the fiscal consolidation path for macroeconomic stability but cautioned that higher government borrowing could increase bond yields and increase funding costs for corporates. It expects India to consolidate fiscal deficit by 50 bps to 5.9% of GDP in FY24.

The government aims to lower the fiscal deficit to 4.5% by 2025-26.

One of the key pillars of India's macro stability is the gradual reduction in fiscal deficit, which also helped in reducing the current account deficit, checking inflationary pressure, and keeping the rupee stable, Goldman Sachs said. HDFC Bank pegged deficit at 5.8%.

Pragmatic Budget, High Borrowing:

India's FY23 gross market borrowing is estimated at Rs 14.2 lakh crore and economists see it rising to Rs 15-17 lakh crore in 2023-24.

Nomura expects a 5.9% fiscal gap in FY24, supported by lower subsidy spending and a ramp-up in capital expenditure. "Higher rural spending and some income tax tweaks are possible, but we are not penciling in a populist budget," it said.

FY24 budget follows a turbulent year for India's fiscal dynamics, where a surge in subsidies due to the Russia-Ukraine conflict was offset by higher tax collections, Barclays said, adding that the government has also slowly but steadily been withdrawing pandemic-related emergency measures, which should add to fiscal sustainability over the medium term.

The government last month got parliamentary approval for gross additional expenditure of Rs 4.36 lakh crore for fertilizer and food subsidies, payments to the oil marketing companies for domestic LPG operations, and additional funds for the Mahatma Gandhi National Rural Employment Guarantee Scheme.