Interim budget: Govt likely to give populist spending a pass ahead of general election

New Delhi: The government is likely to stay on the fiscal course-correction glide path in the interim budget for FY25, shunning populist spending or incentives ahead of the summer general election, said people aware of deliberations on the subject.

The post-Covid-19 fiscal consolidation roadmap proposed by the government estimates the fiscal deficit at 4.5% of GDP by FY26 from the budgeted 5.9% this year.

While the numbers are being worked out, the Centre may peg its FY25 fiscal deficit at the current fiscal level (budgeted at ₹17.87 lakh crore) or even reduce it, said one of the persons cited. This would lead to a meaningful cut in the fiscal deficit relative to nominal GDP that's expected to expand at a double-digit pace in FY25, one of the officials told ET.


The government will present an interim budget for FY25 in February, leaving the full budget to the next government after the general elections in April-May.

In pre-budget meetings with various departments and ministries, the finance ministry has told them to be prudent with spending assessments for the next fiscal year.

The government is also concerned that any consumption booster could exacerbate inflationary pressures and jeopardise efforts to rein in prices.

"We were asked to be judicious with our expenditure demands. It was clear the finance ministry wanted greater fiscal discipline," said a senior official who attended pre-budget discussions involving his ministry's demands.

Finance minister Nirmala Sitharaman had said on December 7 that the interim budget that will be presented in February is just to meet expenditure until a new government is sworn in after elections. "No spectacular announcements are made" in a vote on account, she had said.

The Centre will aim to balance the need for sustained high growth with fiscal consolidation imperatives, said another of the officials cited above. It will continue with subdued growth or compression in revenue spending in FY25 from the revised estimate for this fiscal year.

At the same time, capital expenditure (capex) may be raised again in FY25 from the ₹10 lakh crore budgeted in the current fiscal year to spur economic growth, given its high multiplier effect, including the crowding in of private investment.

However, as ET reported last month, the rate of the capex hike could be more modest in FY25 than the levels witnessed in recent years. The government expects the nascent rise in private investment will gather strength in the next fiscal year, giving it room to cut budgetary capex increase without disrupting growth momentum.

The Centre has raised its capital expenditure in the range of 24% to 39% annually since FY22, way above the increase in revenue spending. The FY24 budget had hiked capex to a record ₹10 lakh crore, an increase of 35.9% from the previous year while seeking to contain the growth in revenue spending at just 1.4% to ₹35 lakh crore.

The government expects to meet the FY24 fiscal deficit target with a higher-than-anticipated revenue mop-up, making up for the increase in spending under some heads.

The Centre is also mindful that any break from fiscal rectitude will exacerbate its already elevated debt and interest burden.