Centre aims for lower fiscal deficit in budget 2024 despite boost in capital expenditure: Survey

The poll, which gathered insights from 41 economists, revealed that the February 1 budget is projected to focus on narrowing the fiscal deficit to 5.30% of GDP in 2024-25.

The upcoming Union Budget 2024 is anticipated to strike a delicate balance between populist measures and fiscal responsibility, as the Centre aims to lower the fiscal deficit in the 2024-25 fiscal year despite a surge in capital expenditure to a record level, according to a Reuters poll of economists conducted from January 10-19.

As the nation enters an election year, Prime Minister Narendra Modi’s government is expected to navigate the challenge of balancing popular schemes with fiscal prudence. The poll, which gathered insights from 41 economists, revealed that the February 1 budget is projected to focus on narrowing the fiscal deficit to 5.30% of GDP in 2024-25.

Notably, education and healthcare were not identified as the primary budgetary concerns by the economists. Instead, respondents emphasized that infrastructure investment (34), rural development (17), and job creation (16) are the foremost priorities, given the significant challenge of accommodating millions entering the workforce annually.

The survey suggests that the focus on deficit control is likely to restrict the expansion of welfare schemes, with gross borrowing predicted to remain largely unchanged at 15.60 trillion rupees from the current year’s projection.

Economists pointed out that the government’s aim to narrow the fiscal deficit to 4.50% of GDP by the end of the 2025-26 fiscal year, down from 5.90% in the current year, requires careful expenditure management. Alexandra Hermann, lead economist at Oxford Economics, noted that achieving the 4.5% deficit target by 2025-26 would necessitate keeping total expenditures to a rise of no more than 7% per fiscal year on average. This could potentially result in a more aggressive cut to expenditures in the coming years.

Hermann emphasized the importance of continued and rapid improvement in India’s infrastructure for reviving the private investment cycle. However, she also highlighted the need for spending on education, stating that it should be the main priority to leverage India’s vast potential and ensure sustainable and inclusive growth over the medium to longer term.

Kunal Kundu, India economist at Societe Generale, expressed concerns about growth challenges, particularly in the rural areas where the informal sector, including micro, small, and medium enterprises (MSMEs), continues to struggle. Kundu emphasized the need to address stress in the informal sector, which plays a crucial role as one of the significant job generators in the economy.

As the government prepares to unveil the Union Budget 2024, expectations are high for a strategic and balanced approach that addresses economic challenges while fostering sustainable growth and inclusivity. The emphasis on narrowing the fiscal deficit while addressing key priorities reflects the government’s commitment to financial discipline and responsible fiscal management.