Fiscal Deficit and India's Budget 2024: As Finance Minister Nirmala Sitharaman gears up to present the Union Budget 2024 on February 1, all eyes are on one crucial aspect: the fiscal deficit. In the previous fiscal year (2023-24), she set a fiscal deficit target of 5.9 percent of GDP, a notable decrease from the 6.4 percent recorded in FY 2022-23.
So, what exactly is fiscal deficit, and why does it matter? Put simply, it's the difference between what the government earns and what it spends. When the deficit is high, it implies that the government might need to borrow more to cover its expenses.
For India, meeting financial obligations primarily relies on taxes and other income sources. Rarely does any major economy end a year with surplus funds. This shortfall between income and spending is covered through borrowing, where the government raises loans from various avenues.
These loans come from diverse sources like government securities, treasury bills, and borrowing from individuals through savings schemes like post office accounts, national savings certificates, and public provident funds.
As we look ahead to the Union Budget for FY 2024-25, it's crucial to note that this will be an interim budget due to the impending Lok Sabha elections in April-May 2024. Expectations are high regarding the announcement on the fiscal deficit.
The 15th Finance Commission suggested reducing the fiscal deficit to 4.5 percent by FY 2026 from the targeted 5.9 percent for FY 2024-25. However, the exact figures are yet to be finalized. The Economic Survey 2023 projected a GDP growth of 6-6.8 percent in FY 2024, with a baseline GDP growth of 11 percent in nominal terms and 6.5 percent in real terms in FY24.
Looking back, the government aimed for net market borrowing from dated securities at around Rs 11.8 lakh crore for a fiscal deficit of 5.9 percent in FY 2024. The gross market borrowing was expected to reach Rs 15.4 lakh crore.
In her speech for FY 2023-24, Sitharaman outlined total receipts (excluding borrowing) at Rs 27 lakh crore against total expenditures of Rs 45 lakh crore. Tax receipts were projected at Rs 23.3 lakh crore.
However, the government faced challenges in meeting its disinvestment targets. By December 2023, it only realized Rs 10,500 crore against the targeted Rs 51,000 crore from disinvestment in Central Public Sector Enterprises. Despite this, it claimed control over the fiscal deficit according to estimates.
Moving forward, the government is expected to curtail revenue expenditure while emphasizing increased capital expenditure to stimulate economic growth. The direction of India’s economic policies significantly hinges on achieving fiscal deficit targets and redefining spending priorities.
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