CII Urges Balance in Fiscal Targets for Economic Growth

The Confederation of Indian Industry (CII) recommends maintaining the fiscal deficit target of 4.9% for FY25 and 4.5% for FY26 in the Union Budget. Emphasizing macroeconomic stability, CII suggests a debt reduction path and highlights the need for fiscal prudence at both central and state levels for long-term growth.

The Confederation of Indian Industry (CII) has advised the central government to adhere to a fiscal deficit target of 4.9% for FY25 and 4.5% for FY26. According to CII Director General Chandrajit Banerjee, setting overly aggressive fiscal targets could negatively impact economic growth.

Banerjee highlighted India's rapid growth despite a global economic slowdown, attributing it to prudent fiscal management that balances fiscal deficit with growth support. This strategy has ensured macroeconomic stability and resilience amid global economic uncertainties.

The CII welcomed the Union Budget 2024-25's commitment to maintain fiscal deficit levels that lower the debt-to-GDP ratio. It suggests setting a path to reduce central government debt below 50% of GDP by 2030-31, which could enhance India's credit rating and influence interest rates.

Banerjee proposed that the government consider implementing Fiscal Stability Reporting, including annual assessments of fiscal risks and stability under various stress scenarios. This approach could foresee economic impacts on fiscal policies and ensure comprehensive long-term planning.

Such reporting would involve long-term fiscal forecasts affected by factors like technological, economic, and demographic changes, similar to practices in countries like Brazil and the UK. Banerjee stressed that fiscal discipline at the state level is equally crucial, as state spending now exceeds central spending.

CII suggests three interventions to encourage state fiscal prudence: introducing state-level Fiscal Stability Reporting, allowing states market borrowing with oversight, and creating an independent credit rating system to incentivize good fiscal management. This system could grant states more autonomy based on their fiscal ratings.

(With inputs from agencies.)