Budget 2024: Centre has room to hike spending while ensuring quicker fiscal consolidation, says ICRA's Aditi Nayar

The central government has enough headroom to increase revenue expenditure to address rural distress and low consumption while reducing the fiscal deficit target by another 20 basis points in FY25, according to ICRA’s chief economist Aditi Nayar.

“The Centre has a headroom of around Rs 1.2 lakh crore. We have a sense that it would be shared equally between higher revenue expenditure and faster fiscal consolidation. Increasing revenue expenditure by about Rs 50,000 to 60,000 crore as consumption growth has been weak in some pockets despite good GDP growth would be appropriate. That leaves the Centre with around Rs 50,000 crore for faster consolidation leading to fiscal deficit target pared to 4.9 to 5 percent of GDP,” Nayar told Moneycontrol in an economist roundtable on July 18.

In the interim Budget for FY25, the central government pegged fiscal deficit target at 5.1 percent in the ongoing financial year from the revised aim of 5.8 percent in FY24.

There have been talks about whether the Centre could target an even lower fiscal deficit for FY24 bolstered by a bumper dividend of Rs 2.11 lakh crore from the Reserve Bank of India (RBI). As per some estimates, this gives them room to reduce the deficit by around 0.3 percentage points.

Finance Minister Nirmala Sitharaman will present the full Budget for 2024-25 on July 23.

On the other hand, D. K. Srivastava, Chief Policy Advisor, EY India expects the full Budget to maintain the fiscal deficit target at the same level as announced in the interim version and focus more on deploying higher revenue expenditure for welfare measures.

“The Centre will have an additional Rs 1.5 lakh crore both due to tax revenues and the RBI dividend. My sense is fiscal consolidation will be maintained at 5.1 percent, and capex may stay the same or marginally augmented but revenue expenditure may be raised to close to 8 percent in FY25 from 4.6 percent. That will allow providing additional support for rural demand,” Srivastava added.

Nayar expects the Centre to increase payouts under PM Kisan Samman Nidhi and the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA) as well as tinker personal income tax rates in a bid to address issues around weaker private consumption and rural growth.

On July 18, Moneycontrol reported citing sources that the Budget could increase the annual payout to farmers under the PM Kisan Samman Nidhi to Rs 12,000 from Rs 6,000 currently.

Srivastava believes that this time around the pressure to expand revenue expenditure is more than faster fiscal consolidation warranting more spending on welfare measures.

Catch the full conversation here: https://www.youtube.com/live/xBqC57n5NQc?si=8lyV0Ox3GVYjS_Ab