Interim Budget may target 5.3% fiscal deficit for FY25: Ind-Ra

Budget expectations: The government will target a fiscal deficit to GDP ratio of 5.3% in FY25, even as it may miss the 5.9% target for FY24, said rating agency India Ratings and Research (Ind-Ra), Tuesday.

“Ind-Ra believes… a lower nominal GDP growth rate may push the fiscal deficit to 6.0% of GDP in FY24,” it said.

The first advance estimates released by the government earlier this month pegged the nominal GDP growth at 8.9% in FY24, against the budget target of 10.5%.


The government plans to reduce the fiscal deficit to 4.5% of GDP by FY26.

The rating agency noted that while the governments in the past have been able to achieve the goal of reducing fiscal deficit by 1.4 percentage points within two years, the macro-economic environment and tax buoyancy would determine if the government is able to achieve this goal again in FY26.

“Since FY90, there have been eight instances where the government has reduced the fiscal deficit by over 140bp of GDP in a span of two fiscal years. We, therefore, believe the reduction of fiscal deficit of 140bp of GDP in two years is possible but not easy,” said Devendra Kumar Pant, Chief Economist, India Ratings.

Ind-Ra projected that net tax revenue buoyancy to come in at 1.2x in FY25. Net tax revenue buoyancy indicates the ratio of growth in net tax revenue to nominal GDP.

“Ind-Ra has forecasted this ratio to come in at 1.9x in FY24 as against budgeted 1.1x. This will translate into a net-tax revenue growth rate of 12.6% in FY25,” said Ind-Ra economists.

Ind-Ra pointed out some slackness in capex spending as well in FY25, with growth moderating to 12% in FY25 from 31.4% expected in FY24.

“The slowdown in capex growth is due to a) the pickup in private capex in few sectors, b) the forthcoming elections in April/May and c) the fiscal consolidation target of 4.5% by FY26,” it said.

The rating agency further noted that there was limited scope for revenue expenditure rationalisation, while it projected gross market borrowing to decline marginally to Rs 15.1 lakh crore in FY25 from Rs 15.4 lakh crore budgeted for FY24.