Budget 2025: Can the Modi govt meet its revised fiscal deficit targets?

Finance Minister Nirmala Sitharaman presented the eighth consecutive budget under the Modi government on February 1.

With fiscal consolidation at the forefront, the government is expected to stay focussed on achieving its revised fiscal deficit targets while addressing key economic priorities such as infrastructure development, rural welfare, healthcare, and education.

In the last budget, presented in July, following the Lok Sabha elections, the fiscal deficit was initially pegged at 4.9% of GDP for FY25. However, in the latest budget, the projection has been revised downward to 4.8%.


Additionally, the target for FY26 has been set at 4.4%, slightly below the government's earlier commitment of bringing it below 4.5% as part of its fiscal consolidation roadmap.

This progress has been buoyed by robust tax collections, improved compliance, and a windfall transfer from the Reserve Bank of India. Despite challenges such as economic slowdown and sluggish consumption, the government has largely adhered to the fiscal glide path, stressing the importance of this measure in maintaining fiscal discipline and reducing borrowing needs.

Notably, the Centre's fiscal deficit as of December 2024 stood at 56.7% of the annual target, up from 55% a year ago, indicating that the government is on track to meet the revised 4.8% target for FY25.
Fiscal deficit, the gap between government expenditure and revenue, remains a closely monitored macroeconomic indicator. Success in achieving the fiscal targets will ensure that more funds are available for private investment, fostering economic growth.

The budget was expected to highlight the capex-led economic push, a strategy that has spurred infrastructure development and job creation in key sectors.

Given the coalition dynamics of the current government, balancing growth priorities with the demands of alliance partners was a challenging task. Additionally, elections were looming large over the national capital, a stronghold of the Aam Aadmi Party, which the BJP is keen to breach.

Allocations toward rural development and education saw an increase, reflecting efforts to address grassroots concerns. Simultaneously, initiatives aimed at boosting exports, strengthening supply chains, and promoting 'Make in India' also took center stage yet again.