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regular-article-logo Sunday, 03 November 2024

Focus turns to reining in debt: Aim to reach a deficit below 4.5 per cent next year, FM says

'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 per cent next year. The Government is committed to staying the course', Nirmala Sitharaman said

R. Suryamurthy New Delhi Published 24.07.24, 12:57 PM
Members of the Indian Chamber of Commerce watch the live telecast of the budget presentation in Calcutta on Tuesday.

Members of the Indian Chamber of Commerce watch the live telecast of the budget presentation in Calcutta on Tuesday. Picture by Bishwarup Dutta

Finance Minister Nirmala Sitharaman has reaffirmed India’s commitment to fiscal consolidation, announcing a reduction in the fiscal deficit to 4.9 per cent of GDP for the 2024-25 fiscal year, down from 5.1 per cent in the February interim budget. In her budget speech, Sitharaman emphasized that the future path of fiscal consolidation would prioritize reducing the debt-to-GDP ratio.

“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 per cent next year. The Government is committed to staying the course. From 2026-27 onwards, our endeavor will be to keep the fiscal deficit each year such that the Central Government debt will be on a declining path as a percentage of GDP,” Sitharaman stated.

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The fiscal deficit is projected to be 16.13 lakh crore, down from 16.85 lakh crore in the interim budget. Sitharaman detailed that gross and net market borrowing for FY25 are pegged at 14.01 lakh crore and 11.63 lakh crore, respectively. Net tax receipts are estimated at 25.83 lakh crore, with total receipts at 32.07 lakh crore. Total expenditure is projected to be 48.21 lakh crore for the same period.

The February 2024 interim budget had set the fiscal deficit at 5.1 per cent of GDP for FY25, compared to 5.8 per cent in the previous fiscal year. The Fiscal Responsibility and Budget Management (FRBM) Act originally mandated that the Central Government limit the fiscal deficit to 3 per cent of GDP by March 31, 2021. However, this target was extended due to various factors, including the Covid-19 pandemic. The FRBM also stipulated that the Central Government should aim to limit general government debt to 60 per cent of GDP and central government debt to 40 per cent of GDP by March 31, 2025.

The Medium-Term Fiscal Policy cum Fiscal Policy Strategy Statement projected that the central government’s debt level would decline to 56.8 per cent of GDP in 2024-25, down from 58.1 per cent the previous year.

In a post-budget press briefing, Finance Secretary T.V. Somanathan stated that while the government could not disclose the exact fiscal deficit level required to reduce the debt-to-GDP ratio each year, it is likely to be “not above 4.5 per cent of GDP.”

For a rapidly growing economy like India, a sustainable deficit level is “much more than 3.0 per cent and probably lower than 4.5 per cent,” Somanathan added.

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