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India's post-election budget confirmed that the new government remains committed to reducing the fiscal deficit this year and next, despite the demands of the coalition government, said Fitch Ratings.
The sustained focus on supporting economic growth through high public capital expenditure also points to continuity in key development areas, the rating agency said on Friday in a statement. The budget presented on Tuesday by Finance Minister Nirmala Sitharaman lowered the central government's fiscal deficit target for 2024-25 to 4.9 percent of GDP, down from 5.1 percent pegged in February's interim budget. It is significantly below the 5.4 percent that Fitch had anticipated when it affirmed a stable outlook on India in January 2024. The improved fiscal deficit target partly reflects a large dividend from the Reserve Bank of India (RBI), received by the government in May. "We believe that it (the fiscal deficit) should be achievable, as the government's assumption of 10.5 percent nominal GDP growth in 2024-25 is modestly below our current forecast. We think the government should also be able to achieve its goal of reducing the deficit below 4.5 percent of GDP in 2024-26," Fitch Ratings said. The government's record in recent years of achieving or outperforming its budget deficit targets has improved its fiscal credibility; the deficit in 2023-24, at 5.6 percent of GDP, was well below the original target of 5.9 percent. The difference between total revenue and total expenditure by the government is termed the fiscal deficit. It is an indication of the total borrowings that may be needed by the government. The government intends to bring the fiscal deficit below 4.5 percent of GDP by the financial year 2025-26. "Furthermore, the government's use of the RBI dividend reinforces our perception of a preference for fiscal consolidation over additional spending. The budget did not provide much clarity on medium-term targets but did highlight a desire to manage deficits to keep debt on a declining path." The capital expenditure spending target in 2024-25 was unchanged from the interim budget at Rs 11.11 lakh crore, at 3.4 percent of GDP, remaining high and broadly in line with recent trends. The central government kept the capital expenditure outlay at Rs 11.11 lakh crore for 2024-25, as was announced by Union Finance Minister Nirmala Sitharaman in her interim budget ahead of the general elections. Capital expenditure, or capex, is used to set up long-term physical or fixed assets. In 2023-24, which was the last full budget under the Prime Minister Narendra Modi-led government's second term, the government proposed to increase capital expenditure outlay by 33 percent to Rs 10 lakh crore, estimated to be 3.3 percent of GDP. In 2024-25, it is an 11.11 percent raise in capex. (ANI)
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