Finmin likely to peg fiscal deficit below 4.5 per cent for FY26
December 24, 2024
Ahead of the presentation of the new Union Budget, the Union Finance Ministry has emphasised adopting a ‘fair degree of flexibility in conducting its fiscal policy,’ keeping in mind the gloomier global situation. It has indicated that fiscal deficit for fiscal year 2025-26 (FY26) could be lower than 4.5 per cent.
The Budget for FY26 is likely to be presented on February 1. Fiscal deficit for FY25 is pegged at 4.9 per cent.
The Ministry reiterated its commitment to pursue the glide path of fiscal consolidation announced in the Budget for FY 2021-22 and to attain a level of fiscal deficit lower than 4.5 per cent of GDP by FY 2025-26. The thrust will be on improving the quality of public spending, while strengthening the social security net for the poor and needy. “This approach would help further strengthen the nation’s macro-economic fundamentals and ensure overall financial stability,” the Ministry said.
It also cautioned about various risks to growth including global geo-political conflicts.
“Since the presentation of the Union Budget for FY 2024-25 (Regular) in July 2024, global headwinds and associated risks are yet to abate. The global situation has become even gloomier due to further escalation of conflict among a set of countries,” the Ministry said in a statement on the Half Yearly Review of the Trends in Receipts and Expenditure in relation to the Budget at the end of the first half (April-September) of the financial year 2024-25 (FY25). Such a statement is required under the Fiscal Responsibility and Budget Management (FRBM) Act.
Further, it said that given the prevailing global economic and security environment, it is necessary for the Government to retain a fair degree of flexibility in conducting its fiscal policy so as to be able to respond to any fallout from adverse global events.
The regular budget presented in July did not provide rolling targets under the Medium Term Fiscal Policy Statement (MTFPS) and the Fiscal Policy Strategy Statement (FPSS). “This is because the continuing unprecedented global uncertainty impedes the ability to make reasonable assumptions/projections on receipts/expenditure over the short/medium term,” it said.
The Ministry emphasised that the Budget 2024-25 was presented in the backdrop of global uncertainties caused by the ongoing wars in Europe and the Middle East. “India’s sound macro-economic fundamentals have cushioned the country from the vagaries afflicting the global economy. It has also helped the nation pursue growth with fiscal consolidation. As a result, India retains its pride of place as one of the fastest-growing economies in the world. However, risks to growth still remain,” it said.
Highlighting mid-year benchmarks, data contained in the statement showed that the fiscal deficit in the April-September period of FY25 is the lowest in five years, as it has come down from 114.8 per cent of the budget estimates in FY21 to 29.4 per cent in the current fiscal. The fiscal deficit in FY25 was estimated at ₹16.13 lakh crore, or about 4.9 per cent of GDP. In H1 of FY 2024-25, the fiscal deficit is estimated at ₹4.75 lakh crore, which is less than one-third of the BE.
[The Hindu Business Line]
