- The government reduced the fiscal deficit target to 4.9% of GDP for FY 2024-25 from 5.1% in the interim Budget, signalling a commitment to a declining central government debt-to-GDP ratio.
- The fiscal consolidation path set in 2021 has been beneficial, with a goal to reach a deficit below 4.5% next year and maintain a declining debt-to-GDP ratio from 2026-27 onwards.
- In Budget 2023-24, the fiscal deficit was targeted at 5.9% of GDP but was revised down to 5.8%. Provisional actuals show FY24’s fiscal deficit at 5.6%.
- The reduction in FY24’s fiscal deficit is due to
- Compressed revenue expenditure
- Lower capital expenditure
- Higher tax revenues.
- Public finance metrics remain a weakness in India’s credit profile, with fiscal deficit, interest-to-revenue, and debt ratios still high compared to ‘BBB’ category peers.
| Fitch Ratings on Fiscal Consolidation • It expressed confidence in the Indian government’s ability to achieve its enhanced fiscal deficit reduction target of 4.9% of GDP this year and below 4.5% of GDP by FY26. • Fitch observed that the long-term deficit target of 3% of GDP under the 2003 Fiscal Responsibility and Budget Management Act no longer appears to be a guiding objective. |
Dig Deeper: Read provisions of FRBM Act 2003 and read whether its relevant today?
