Government aims lowering fiscal deficit to 5.1% for FY25

Budget 2024: The government has set an aim to reduce the fiscal deficit to 5.1 per cent in the 2024/25 fiscal year, following a decrease to 5.8 per cent of gross domestic product (GDP) in the current fiscal year, said Finance Minister Nirmala Sitharaman.

Sitharaman reaffirmed the government's commitment to fiscal consolidation, highlighting plans to curtail the fiscal deficit while augmenting capital expenditure and rolling out new welfare initiatives. This endeavour will be supported by enhanced tax revenues and targeted subsidy reductions.

The government's proposal to gross borrow Rs 14.13 lakh crore ($170.35 billion) via bonds in the upcoming financial year stands in stark contrast to previous estimates, signalling a more conservative borrowing approach.

Market response was notable, with bond yields witnessing a decline post the announcement of lower fiscal deficit and borrowing targets, both of which fell short of market projections. 

The 10-year benchmark bond yield reached 7.0511 per cent, marking its lowest level since July 19.

The revised fiscal targets underscore the government's commitment to fiscal prudence amid populist pressures ahead of the upcoming national elections. 

While projections suggest Prime Minister Narendra Modi is poised for a rare third consecutive term, the government's fiscal restraint aligns with broader economic objectives.

The reduction in the fiscal deficit is likely to assuage concerns among foreign investors and rating agencies, particularly regarding India's ability to meet its target of narrowing the deficit to below 4.5 per cent of GDP over the next two years.

Moreover, the government's attentiveness to fiscal deficit targets gains importance as the inclusion of India's sovereign bonds in prominent emerging market indexes, such as JPMorgan and Bloomberg, will draw increased scrutiny from investors regarding the country's debt levels.

(With Reuters Inputs)