According to the International Monetary Fund, India has the leeway to absorb increased spending for subsidies and a programme to combat rural unemployment.
The country can do so without increasing its budget deficit objective from the 5.9 per cent goal established for the current fiscal year according to a report by Reuters.
The party of Prime Minister Narendra Modi has come under pressure to support farmers and create jobs, which might result in higher than anticipated spending for the year. It faces elections in important states this year and national elections in 2024.
"The central government is likely to meet its 5.9 per cent deficit target for FY23-24," Krishna Srinivasan, IMF's director for the Asia and Pacific department told Reuters.
India increased the cooking gas subsidy for low-income households earlier this month from Rs 200 per cylinder to Rs 300 per cylinder, as stated in August. This could increase the 3.74 trillion rupees in food, fertiliser, and fuel subsidies planned for the current fiscal year; more of these actions are anticipated as elections approach.
"There's some pressure on expenditure with higher than budgeted expenditure expense some areas – subsidies, higher MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) expenses. At this stage, we see room in the budget to absorb these unexpected increases," Srinivasan added.
IMF has already raised India's GDP growth forecast to 6.3 per cent from 6.1 per cent in the early days of October. This was owing to higher demand in the country. The raise showcased a stronger than expected consumption pattern in the country between April and June.