Govt may peg fiscal deficit at around 5.8% of GDP in FY24
NEW DELHI: Despite spending pressures and an expected growth slowdown, the Union government may stick to its fiscal glide path and target a fiscal deficit of 5.7-5.8% of gross domestic product for FY24, an official aware of the matter said. Lower subsidy outgo and ending the free foodgrain scheme may help the government in this respect, as it aims to cut the deficit to 4.5% by FY26. However, a final decision on the FY24 deficit target will be taken at the highest levels closer to the budget.
A fiscal deficit arises when a government spends more than its revenues.
However, even though spending in FY23 is likely to be higher than initially expected, the government is confident of meeting the FY23 fiscal deficit target of 6.4% by cutting avoidable spending and high nominal GDP. Growth in nominal GDP— the denominator for the fiscal deficit ratio—is likely to be higher than the 11.1% estimated in the FY22 budget due to this year’s steep inflation. However, there may be some slippage in the absolute fiscal deficit number due to the rupee depreciation and reduction in excise duty.
“The government intends to try and stick to the glide path. We need to go from 6.4% to 4.5% of GDP in three years, so we could target a lower fiscal deficit by 0.6-0.7 percentage points in FY24. We may get some space as there may not be a free foodgrain scheme, and commodity prices for fertilizers may be lower. Overall, we remain committed to the fiscal glide path,” the person cited above said on the condition of anonymity.
After the fiscal deficit shot up to 9.3% in FY21 amid the covid-19 pandemic, Union finance minister Nirmala Sitharaman proposed a glide path in the
FY22 budget to trim it to 4.5% by FY26 to boost medium-term economic growth.
“We will have to curtail some revenue expenditure… the avoidable ones...but not capital expenditure. We will not cut anything from ₹7.5 trillion, as estimated in the budget. The execution, or the ability to absorb, is in the hands of various executing ministries,” the person said.
In this year’s budget, the government sharply increased its capital expenditure target to ₹7.5 trillion from ₹5.5 trillion the previous year, betting it will crowd in private investment and create jobs.
It has already sanctioned close to ₹55,000 crore of the ₹80,000 crore allocated to the states for various capital projects, of which ₹27,000 crore has already been disbursed. All states have taken the first instalment.
“We anticipate that a moderate fiscal correction would be attempted next year, with a fiscal deficit in the range of 5.5-6%, depending on factors such as the market-driven level of fertilizer subsidy and whether free foodgrain is provided in the coming first supplementary demand for grants,” said Aditi Nayar, chief economist, ICRA Ltd.