Budget 2024: Govt reduces fiscal deficit target to 5.8% in FY24

Finance Minister Nirmala Sitharaman in her budget speech today reduced the Budget estimate for the fiscal deficit to 5.8% in FY24 as compared to the previous budget estimate of 5.9%. "The Revised Estimate of the fiscal deficit is 5.8 per cent of GDP, improving on the Budget Estimate, notwithstanding moderation in the nominal growth estimates," the FM says.

Notably, the country's fiscal deficit was 6.4% of the GDP in FY23 (RE). The country's fiscal deficit continues to fall since FY21 when it touched 9.2%. In FY22, it stood at 6.8%.

Speaking in Parliament, Sitharaman says India continues on the path of fiscal consolidation, as announced in the government's Budget Speech for 2021-22, to reduce the fiscal deficit below 4.5 per cent by 2025-26. "The fiscal deficit in 2024-25 is estimated to be 5.1 per cent of GDP, adhering to that path," the FM says.

The Centre had earlier set a medium-term target of restricting the fiscal deficit to below 4.5% of GDP in FY2026. Experts in their pre-budget expectations said the government will have to budget for a deficit of around 5.3% for FY25, midway through the expected print of over 6% in FY2024 and the medium-term target. "It'll be prudent to attempt to bridge half the required consolidation in FY25, and budget for a deficit of around 5.3% of GDP," said ratings agency ICRA.

In its FY25 target, they had called for striking a balance between fiscal consolidation and incremental capex. ICRA said with the assumption of a sharper expansion in revenue receipts (+9.5%), compared to revenue expenditure (3.9%), the revenue deficit is expected to entail a substantial correction to ₹7.9 lakh crore, 2.5% of the GDP estimate, in FY25 from ₹9 lakh crore for FY24.

Sharekhan expected that the government might cut down the fiscal deficit as compared to the previous year’s target of 5.9% of GDP as the fiscal deficit is expected to be lower for FY24E.