India’s fiscal deficit to decline to 4.5 pc in FY 26, anticipates economic survey

New Delhi [India], July 22 (ANI): The fiscal deficit of the government is expected to drop to 4.5 per cent of GDP or lower by the financial year 2026, said the Economic survey tabled in Parliament on Monday.

“In its pursuit of fiscal consolidation through efficient and prudent fiscal management, the Government continues to stick to the fiscal glide path. The fiscal deficit of the Government is expected to drop to 4.5 per cent of GDP or lower by FY26,” the survey said.

“This commitment has helped keep the sovereign debt sustainable, thereby keeping sovereign bond yields and spreads in check. All these factors have combined to keep the macroeconomic environment stable and provide a platform for sustainable growth. This is reflected in the downward trajectory of the macroeconomic vulnerability index – an index constructed by combining India’s fiscal deficit, CAD and inflation,” it added.

The survey said that against the global trend of widening fiscal deficit and increasing debt burden, India has remained on the course of fiscal consolidation. The favourable fiscal performance in 2023, emerged as the cornerstone of India’s macroeconomic stability, it said.

The fiscal deficit of the Union Government has been brought down from 6.4 per cent of GDP in FY23 to 5.6 per cent of GDP in FY24, according to provisional actuals (PA) data released by the Office of Controller General of Accounts (CGA).

Strong growth in direct and indirect taxes on account of resilient economic activity and increased compliance meant that the tax revenues generated exceeded the conservative budgetary estimates, the survey said.

Additionally, higher-than-budgeted non-tax revenue in the form of dividends from the RBI has buffeted revenue receipts. In combination with restrained revenue expenditure, these buoyant revenues ensured lower deficits.

“A decomposition of the fiscal deficit over the past few years reveals that with a narrowing revenue deficit, a larger share of the fiscal deficit is being accounted for by capital outlay. This suggests that the productivity of borrowed resources has improved,” it added.

Earlier in its report, the SBI research suggested that the government should adhere to fiscal prudence and continue on the fiscal consolidation path.

The difference between total revenue and total expenditure of the government is termed as fiscal deficit. It is an indication of the total borrowings that may be needed by the government.

In the Interim Budget earlier this year, the government has targeted a fiscal deficit of 5.1 per cent of GDP for 2024-25.

In 2023-24, the government had pegged the fiscal deficit target for 2023-24 at 5.9 per cent of gross domestic product (GDP). Later, it was downwardly revised to 5.8 per cent.

The interim budget, tabled on February 1, took care of the financial needs of the intervening period until formation of new government.

The union budget to be presented by Finance Minister Nirmala Sitharaman on Tuesday will the first budget of Modi 3.0 government.