SBI Research Suggests Fiscal Prudence for Modi’s 2024-25 Budget
SBI Research has advised the government under Prime Minister Narendra Modi to focus on fiscal prudence and continue on the fiscal consolidation path. This advice comes ahead of the much-awaited full Budget for 2024-25, which will be presented on July 23. This will be the first Budget under Modi 3.0.
The fiscal deficit, which is the difference between total revenue and total expenditure, indicates the total borrowings needed by the government. SBI Research suggested targeting a fiscal deficit of 4.9%, but cautioned against obsessing over the fiscal stance. The government aims to bring the fiscal deficit below 4.5% of GDP by the financial year 2025-26.
In the Interim Budget earlier this year, the government targeted a fiscal deficit of 5.1% of GDP for 2024-25. However, due to significant growth in GST revenues and higher dividends from PSUs and RBI, SBI Research believes the government may budget a fiscal deficit of less than 5%, possibly 4.9%, for 2024-25.
According to the SBI Research report, authored by Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, a lower budgeted fiscal deficit will reduce the government’s gross market borrowing to around Rs 13.5 lakh crore in FY25, compared to Rs 14.1 lakh crore in the interim budget. Net market borrowing will also reduce to Rs 11.1 lakh crore from Rs 11.8 lakh crore.
This reduction, along with India’s inclusion in Global Bond indices, will help stabilize yield curve movements. In 2023-24, the government initially set the fiscal deficit target at 5.9% of GDP, later revising it to 5.8%.
The interim budget, presented on February 1, addressed the financial needs until a new government was formed after the Lok Sabha elections. The full budget will be presented by the new government in July. With this upcoming Budget Presentation, Finance Minister Nirmala Sitharaman will surpass the record set by former Prime Minister Morarji Desai, who presented five annual budgets and one interim budget between 1959 and 1964. Sitharaman’s upcoming Budget speech will be her sixth.
The government announced that the budget session of Parliament will start on July 22 and conclude on August 12.
