Fiscal Deficit
Fiscal Deficit

No Populist Moves: Sharp Reduction In Fiscal Deficit Eyed By Government For FY26

The government plans disciplined fiscal measures in the FY25 interim budget, avoiding populist spendings before elections

The government is set to continue its fiscal course correction in the interim budget for FY25, avoiding populist measures ahead of the upcoming general election, as per a report by the Economic Times. The post-Covid fiscal consolidation plan targets a reduction in the fiscal deficit to 4.5 per cent of GDP by FY26 from the current year's projected 5.9 per cent.

While the exact figures are still in the process of being determined, there is a chance that the government could either maintain the fiscal deficit for FY25 at the current fiscal year's level (budgeted at Rs 17.87 lakh crore) or even consider a reduction. This adjustment would translate to a decrease in the fiscal deficit relative to the anticipated double-digit expansion in the nominal GDP in FY25, according to sources cited by the report. An interim budget for FY25 is set for February, deferring the full budget to the post-general elections government in April-May.

In pre-budget discussions, the finance ministry urged departments to be cautious in projecting spending for the next fiscal year. The government is concerned that any efforts to boost consumption may heighten inflationary pressures and hinder price control measures.

On December 7, Finance Minister Nirmala Sitharaman clarified that the upcoming February interim budget is intended to fund expenditures until a new government assumes office post-election. She highlighted that significant announcements are not customary in a vote on account, as stated.

The government anticipates meeting the FY24 fiscal deficit target due to better-than-expected revenue, compensating for increased spending. However, it remains cautious, as any departure from fiscal discipline could worsen the existing high debt and interest burden.

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