In preparation for the 2024/25 budget, the Indian government is contemplating a significant reduction in its budget deficit by at least 50 basis points from the current year’s target of 5.9 per cent of Gross Domestic Product (GDP), according to sources cited in a Reuters report. Additionally, there are indications of a potential 20 per cent increase in capital spending, aiming to strike a balance between fiscal responsibility and infrastructure development.
While the finance ministry has yet to officially confirm these plans, economists like Devendra Pant from India Ratings emphasize the need for the government to generate more revenue through taxes and trim extra financial assistance, such as subsidies, to effectively reduce the fiscal deficit and allocate more funds to crucial sectors like infrastructure.
The eagerly anticipated budget, scheduled for release on February 1, 2024, forms part of ongoing discussions about the fiscal year starting in April. Sources within the government express confidence in meeting the current year’s fiscal deficit target of 5.9 per cent by March 31, 2024.
These proposed measures come as part of a broader effort to increase capital spending on infrastructure, with a target set to rise from the current year’s plan of 10 trillion rupees ($120.45 billion) to a noteworthy 12 trillion rupees ($144.59 billion). The government’s consistent emphasis on infrastructure spending has played a pivotal role in propelling India into one of the world’s fastest-growing economies, mitigating the impact of high inflation on consumption.
The successful execution of these fiscal policies may not only boost economic stability but also bring relief to foreign investors and rating agencies. The looming doubt about India achieving its goal of narrowing the deficit to below 4.5 per cent of GDP within the next two years may be addressed through these strategic measures.
Furthermore, the government recognizes the importance of meeting fiscal targets to attract new investors, especially with inclusion in the JPMorgan and Bloomberg emerging market indexes. As global investors scrutinize India’s debt levels, the successful implementation of these fiscal policies could shape international perceptions and foster economic stability in the months ahead.
