30-Jan-2025, 01:54 PM
According to the latest UBI Report, the upcoming Union Budget for FY25-26 is set to focus on reducing the fiscal deficit to 4.5% of GDP. This target represents a significant step towards achieving a more sustainable fiscal framework following the increased government spending necessitated by the pandemic. The fiscal deficit for FY25 is projected to be around 4.8%, indicating a commitment to fiscal prudence and consolidation in the following year.
The report highlights that achieving this fiscal target will require a careful balancing act between maintaining growth and implementing necessary reforms. The government aims to enhance capital expenditure, particularly in critical sectors such as infrastructure, health, and education, while also ensuring that revenue collections remain robust. The anticipated nominal GDP growth of approximately 10.2% in FY26, alongside moderated inflation rates, is expected to support this fiscal strategy.
While the government plans to prioritize capital expenditure, which is projected to rise significantly, there are concerns regarding revenue generation. The fiscal landscape is complicated by potential shortfalls in disinvestment proceeds and subsidy pressures, particularly in the fertilizer and petroleum sectors. Despite these challenges, the report suggests that strong tax collections, particularly from income tax and GST, could bolster revenue receipts.
The budget may also introduce measures aimed at stimulating consumption demand, such as increasing basic exemption limits for income tax. This could further enhance economic activity and support the government’s goal of reducing the fiscal deficit without compromising growth. Additionally, higher allocations for rural schemes like PM-KISAN and MGNREGA are expected to positively impact sectors reliant on rural consumption.
Market reactions to these fiscal targets are crucial, as a well-balanced budget that emphasizes both fiscal discipline and growth can instill confidence among investors. Analysts believe that maintaining the fiscal deficit around 4.5% will be key to sustaining market optimism while allowing for necessary investments in infrastructure and social programs.
As the Union Budget presentation approaches on February 1, 2025, stakeholders will be closely monitoring how the government plans to navigate these challenges while adhering to its fiscal consolidation goals. The commitment to reducing the fiscal deficit is seen as a defining element of this budget, reflecting a broader strategy aimed at stabilizing India’s economic outlook in an uncertain global environment.
