India's Fiscal Roadmap: Sharp Cuts and Economic Resilience

Enthused by improved GDP figures and fiscal health, the Indian government may reduce the fiscal deficit target below 5.1% for FY25. The previous fiscal showed a better deficit at 5.6%. A higher agricultural growth rate is anticipated with robust domestic economic activity and strong corporate investments aiding economic resilience.


PTI | New Delhi | Updated: 31-05-2024 21:47 IST | Created: 31-05-2024 21:47 IST
India's Fiscal Roadmap: Sharp Cuts and Economic Resilience
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Enthused by higher GDP number and improvement in fiscal situation, the government may lower fiscal deficit target below 5.1 per cent of GDP for the current fiscal when full Budget for FY25 is presented in July, sources said.

The deficit number may be better on account of bouyancy in both tax and non-tax heads.

For previous financial year ended March 2024, the fiscal deficit was better at 5.6 per cent of the GDP as against estimates of 5.8 per cent accounted in the interim Budget presented on February 1.

The government would relook at the fiscal deficit when the full Budget is presented, sources said.

Monsoon will be above average and it bodes well for the agricultural sector, they said. The growth rate in the agriculture sector would be higher than FY24, they said. The agriculture sector growth decelerated to 1.4 per cent in FY24 from 4.7 per cent in the previous fiscal.

India's annual growth rate for FY24 to 8.2 per cent as compared to 7 per cent in the previous fiscal, mainly on account of good showing by the manufacturing sector.

The sources said the RBI forecast of 7 per cent for the current fiscal year seems realistic and nominal GDP will be higher in the current fiscal as against the previous financial year. Domestic economic activity remains resilient, backed by strong investment demand and upbeat business and consumer sentiments, according to the sources.

Strong corporate and bank balance sheets and the government's continued capex push could bolster economic growth.

Talking about challenges, sources said, geopolitical tensions pose substantial downside risks while divergence of monetary easing paths of major central banks adds to policy uncertainty.

Elevated financial market valuations globally (particularly in the US) and possible spillover effects on Indian markets could also pose risks.

Besides, there could be impact on sentiment and household finances due to rising retail exposure to stocks through direct stock investments and derivatives positions.

It could keep household savings rate from recovering, the sources said, adding, it is not a systemic risk.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

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