IMF sees India meeting its FY24 fiscal deficit goal despite extra spending

India has room to absorb additional expenditure towards subsidies and rural unemployment programme without raising its fiscal deficit target from 5.9 per cent set for the current financial year, the International Monetary Fund said on Thursday.

Prime Minister Narendra Modi's party, which faces elections in key states this year and national polls in 2024, has been under pressure to create jobs and help farmers, which may lead to higher than planned expenditure for the year. "The central government is likely to meet its 5.9 per cent deficit target for FY23-24," said Krishna Srinivasan, IMF's director for the Asia and Pacific department.

Earlier, this month, government hiked the cooking gas subsidy for low income households to Rs 300 per cylinder from Rs 200 announced in August.

This could add to Rs 3.74 trillion of subsidies for food, fertiliser and fuel planned for the current fiscal year, and with elections on the horizon more such measures are expected.

"There's some pressure on expenditure with higher than budgeted expenditure expense some areas – subsidies, higher MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) expenses. At this stage, we see room in the budget to absorb these unexpected increases," Srinivasan said.

Earlier this month, IMF raised its growth forecast for Asia's third-largest economy to 6.3 per cent from 6.1 per cent, reflecting stronger-than-expected consumption.