Budget 2024: Focus on fiscal consolidation to continue in FY25

Focus on fiscal prudence: The government's focus on fiscal consolidation is not hidden anymore.  Following the fiscal glide path, the target of the government is to reach 4.5 per cent by FY26. However, CareEdge in its pre-budget survey projected the fiscal deficit target for FY25 at 5.3 per cent of GDP. 

“Adhering to its glide path to attain a fiscal deficit of 4.5 per cent by FY26, the projected fiscal deficit for FY25 is set at 5.3 per cent of the GDP. We anticipate a nominal GDP growth of 10.7 per cent in FY25, coupled with a tax buoyancy of 1.2,” the CareEdge report added. 

The survey also said that in FY25, total expenditure is expected to rise by 6 per cent, primarily fuelled by a 10 per cent increase in capital expenditure, complemented by a more modest 5 per cent growth in revenue expenditure. 

Borrowing

In FY24, the central government announced gross market borrowing amounting to Rs 15.4 trillion, with a net borrowing of Rs 11.8 trillion. Maintaining its share at ~86 per cent of the fiscal deficit even in FY25, gross borrowing in the range of Rs 15-15.25 trillion is anticipated. 

According to RBI's data on outstanding Government Securities (G-secs), redemptions worth Rs 3.68 trillion are expected in FY25, with 52.7 per cent scheduled in the second half of the fiscal year. Consequently, a net borrowing of approximately Rs 11.3-11.6 trillion is expected in FY25. 

“Consistent with previous practices, government borrowing is likely to be frontloaded in the first half, allowing states/corporates room to borrow in the latter half of the fiscal year. Overall, a lower supply of G-secs in FY25, combined with increased demand resulting from passive inflows following India's inclusion in global bond indices, is expected to ease G-sec yields in the next fiscal,” CareEdge stated in its pre-budget survey. 

According to CareEdge, a lower G-sec yield is likely to transmit to corporate issuances as well. Additionally, an anticipation of the RBI initiating policy rate cuts after the first quarter of the next fiscal year may further exert downward pressure on borrowing costs.