govt-eyes-sub-5-1-fiscal-deficit-for-fy25

Govt eyes sub-5.1% fiscal deficit for FY25

Government may lower fiscal deficit target below 5.1% of GDP for FY25 , buoyed by higher GDP growth, buoyancy in tax revenues, and anticipated agricultural sector growth, amidst geopolitical tensions and global market uncertainties.

News Arena Network - New Delhi - UPDATED: June 1, 2024, 01:14 PM - 2 min read

Govt eyes sub-5.1% fiscal deficit for FY25

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.

Government sources have indicated that buoyed by a higher GDP figure and an improved fiscal scenario, the government may revise down the fiscal deficit target to below 5.1 per cent of GDP for the current fiscal year when the full Budget for FY25 is presented in July.

The improved deficit figure is expected to stem from increased buoyancy in both tax and non-tax revenue streams.

For the previous financial year ending March 2024, the fiscal deficit was better than anticipated, standing at 5.6 per cent of GDP compared to the estimated 5.8 per cent outlined in the interim Budget presented on February 1.

Sources have stated that the government will reassess the fiscal deficit when the full Budget is unveiled.

Forecasters predict an above-average monsoon, which is promising news for the agricultural sector. They anticipate higher growth rates in agriculture compared to FY24 when growth decelerated to 1.4 per cent from 4.7 per cent in the previous fiscal year.

India's annual growth rate for FY24 reached 8.2 per cent, up from 7 per cent in the previous fiscal, primarily driven by a strong performance in the manufacturing sector.

According to sources, the RBI's forecast of 7 per cent growth for the current fiscal year appears realistic, and they anticipate nominal GDP to surpass the previous financial year's figures.

The domestic economy continues to demonstrate resilience, supported by robust investment demand and optimistic business and consumer sentiments, sources have reported.

Strong corporate and banking balance sheets, along with the government's sustained emphasis on capital expenditure, could further bolster economic growth.

However, sources have highlighted several challenges. Geopolitical tensions present significant downside risks, while uncertainties surrounding the monetary policies of major central banks add to policy uncertainty.

Globally elevated financial market valuations, particularly in the US, could have spillover effects on Indian markets, posing potential risks.

Additionally, rising retail exposure to stocks and derivatives positions may impact sentiment and household finances, potentially hindering the recovery of the household savings rate.

Nevertheless, sources have noted that this is not deemed a systemic risk.