Budget 2024: FM slashes fiscal deficit target to 4.9% for FY25

Union Finance Minister Nirmala Sitharaman today proposed a revision in the fiscal deficit target by 20 basis points to 4.9% of GDP for FY2024-25. "For the year 2024-25, the total receipts other than borrowings and the total expenditure are estimated at ₹32.07 lakh crore and ₹48.21 lakh crore, respectively. The net tax receipts are estimated at ₹25.83 lakh crore. The fiscal deficit is estimated at 4.9 per cent of GDP," says the FM in Parliament.

In the Interim Budget 2024, the FM had set the fiscal deficit target at 5.1% for FY25. The FM today says the fiscal consolidation path announced by her in 2021 served the economy "very well". "We aim to reach a deficit below 4.5 per cent next year. The government is committed to staying the course. From 2026-27 onwards, our endeavour will be to keep the fiscal deficit each year such that the Central Government debt will be on a declining path as a percentage of GDP," the FM announces.

Reacting to the FM's proposal on the fiscal deficit space, Aditi Nayar, Chief Economist at ICRA, says Budget 2024 kept the capital expenditure unchanged and pared the fiscal deficit to 4.9% of GDP in line with ICRA's estimates, although the cut in borrowings is smaller than what it expected.

"The anticipated reiteration of the reduction in the fiscal deficit to below 4.5% of GDP in FY2026, is welcome. Interestingly, the new medium-term fiscal consolidation path has been linked to a reduction in the debt/GDP ratio instead of continued compression of the fiscal deficit/GDP ratio. This will allow the Government flexibility to chart an appropriate fiscal course that builds in higher capital spending as well as support to meeting the climate goals, in a fairly uncertain global environment."

Another ratings agency CRISIL, in its Budget 2024 reaction, says the government has utilised extra revenues to speed up fiscal consolidation. "With the fiscal deficit revised down 20 basis points from the interim budget to 4.9% for this fiscal, it will help ease government security yields and create room for corporate borrowings. We expect sovereign yields to settle at 6.8% by the end of this fiscal."