Analysts expect FM Sitharaman to trim FY24 fiscal deficit below 6%

Mumbai: Finance Minister Nirmala Sitharaman will keep on the path of fiscal consolidation and opt for narrowing the FY24 fiscal deficit to as low as 5.8 per cent in the upcoming Union Budget, analysts said on Tuesday.

The government may go for a fiscal deficit number which will be far lower than the 6.4 per cent of GDP budgeted for FY23, they said, pegging the Budget figure for the next fiscal in the range of 5.8 - 6 per cent.

Given the fact that this will be the last full Budget of the present government, there may be a temptation to make it into an expansionist one. In the two years following the pandemic, the fiscal deficit -- one of the key parameters while assessing macroeconomic stability which also influences inflation -- went up till 9.3 per cent.

India will have to continue on this journey of fiscal consolidation and it does not have the luxury of pausing for the next few years, the analysts made it clear.

"The government's promised fiscal consolidation path will require a herculean effort over the next few years. Think of it like a long-distance cyclist that needs to keep pedalling hard to reach the finish line; if it were to suddenly stop, it risks falling over," HSBC India's chief economist Pranjul Bhandari said in a note.

"... a lower fiscal deficit is key for India's macro stability, especially in an uncertain global environment," she added.

Economists at SBI expect the Budget, which is slated to be announced on February 1, to peg the fiscal deficit close to 6 per cent.

"The budget FY24 presents a challenge before the Government to stick to the road map for fiscal consolidation, amidst a global environment of declining inflation," the SBI economists said.

They added that India will have to grow at a faster clip for making this possible, given its estimates on expenditure and revenue mobilisation.

The SBI economists expect 8.2 per cent growth in expenditure but the subsidy bill to come down, and revenues to grow 12.1 per cent.

On the borrowing front, all the analysts expect the market borrowings of the government to be pegged higher in FY24.

Japanese brokerage Nomura, which pegged the fiscal deficit at 5.9 per cent, said the gross borrowing will rise to Rs 15.5 lakh crore from Rs 14.2 lakh crore in FY23, while SBI estimated it at Rs 16.1 lakh crore.

The note by HSBC said the year before elections are typically associated with low privatisation receipts and expenditure pressures, and included it among the challenges the government will have to grapple with.

The markets will be looking for transparent and credible fiscal math, direct tax reforms, lower tariffs on imports, and a thrust on capital expenditure in the Budget, it added.