The Narendra Modi government is likely to push the envelope on fiscal consolidation in the forthcoming interim budget, and target a challenging 5.2 per cent fiscal deficit for 2024-25, down from 5.9 per cent in 2023-24, brokerage Motilal Oswal said in a report.

“Notwithstanding the fact that the 2024-25 budget will be an interim budget, the most important thing to look out for would be whether the fiscal deficit target is kept at 5.2 per cent or 5.4 per cent of GDP (assuming 10.5 per cent growth in nominal GDP).

“A target of 5.2 per cent of GDP will give a real chance to achieve 4.5 per cent in 2025-26, while 5.4 per cent (or 5.3 per cent) will almost surely postpone the target by at least one year (to 2026-27),” the brokerage said in its Ecoscope report.

It added that while the market expectations are split between 5.2 per cent and 5.4 per cent, they are unlikely to react adversely if a target of 5.4 per cent is set.

According to analysts, India’s growth has been much better than anticipated in the current financial year and there is no major need to provide support to consumption or investment spending.

However, the upcoming general elections may need some announcements for the farm economy and the lower income class.

However, even as the tax receipts have been higher than targets for the last three years, the fiscal deficit needs to be brought down further to avoid any crowding out, as and when the corporate investments pick up.

“Even if there are some populist measures in the interim Budget 2024-25, it is unlikely that they will be accompanied by substantial allocations.

“Accordingly, we hope that the GoI targets fiscal deficit of 5.2 per cent of GDP in 2024-25,” they added.

The brokerage expects the Centre to achieve its fiscal deficit target of 5.9 per cent of GDP for 2023-24.