As the Modi government readies itself to present the first full budget of its third term on July 23, SBI Research has emphasized the importance of fiscal prudence and continued financial consolidation.
India’s largest public sector bank’s research division has advised the government to aim for a fiscal deficit target of 4.9% for the 2024-25 financial year. Fiscal deficit, the gap between total revenue and total expenditure, indicates the government’s total borrowing needs.
The report, led by Group Chief Economic Adviser Soumya Kanti Ghosh, suggests that strong growth in GST revenues and higher dividends from Public Sector Units (PSUs) and the Reserve Bank of India could enable the government to set a fiscal deficit below 5%.
“As the budgeted fiscal deficit gets lowered, gross market borrowing of the government will also reduce to around Rs 13.5 lakh crore in FY25 compared to Rs 14.1 lakh crore in the interim budget and net market borrowing to Rs 11.1 lakh crore against Rs 11.8 lakh crore earlier,” Ghosh stated.
This projection is more optimistic than the 5.1% target set in the Interim Budget earlier this year. The government aims to bring the fiscal deficit below 4.5% of GDP by 2025-26.
Achieving the lower fiscal deficit would reduce the government’s gross market borrowing to approximately Rs 13.5 lakh crore in FY25, down from the Rs 14.1 lakh crore projected in the interim budget. Net market borrowing could decrease to Rs 11.1 lakh crore from Rs 11.8 lakh crore.
The report also suggests that this reduction, combined with India’s inclusion in global bond indices, will help stabilize yield curve movements.
Finance Minister Nirmala Sitharaman is set to make history with her sixth budget presentation, surpassing the record held by former Prime Minister Morarji Desai.
The government announced on Saturday that the budget session of Parliament will start on July 22 and conclude on August 12.