Budget 2024: Govt to focus on fiscal consolidation, may lower fiscal deficit target, say economists

Budget- 2024

The Finance Ministry is expected to continue its focus on fiscal consolidation and lowering fiscal deficit than projected earlier in the interim budget in February, economists told Moneycontrol on July 2.

“We expect the budget to continue to focus on fiscal consolidation and remain growth focused. Overall, fiscal deficit could undershoot interim budget target levels,” said Gaura Sen Gupta, Economist of IDFC First Bank.

Similarly, Achala Jethmalani, Economist at RBL Bank expects that the government will adhere to the fiscal consolidation roadmap.

Economists are expecting fiscal deficit to be lower in the upcoming budget due to fiscal space created by the higher than expected dividend transfer by the Reserve Bank of India (RBI).

The RBI Central Board of Directors has approved the transfer of Rs 2.11 lakh crore as surplus to the government for the financial year 2023-24, the RBI said in a statement on May 22. This was arguably the highest ever yearly surplus transfer to the government by the Indian central bank.

The central bank said surplus transfer to government for financial year 2023-24 was based on the Economic Capital Framework (ECF) adopted by the RBI on August 26, 2019 as per the recommendations of the Bimal Jalan committee. The sharp jump in the surplus amount could be attributed to higher income from the forex holding of the central bank, among other factors.

In the interim budget, the government has targeted a fiscal deficit of 5.1 percent of the GDP for 2024-25. At 5.1 percent, the fiscal deficit target was a huge 70 basis points lower than the current year's revised estimate of 5.8 percent. One basis point is a hundredth of a percentage point.

Also read: Budget 2024: What salaried taxpayers expect under the new tax regime

Cut in income tax

Economists have a divided view on the personal income tax cut in the upcoming budget.

“We do not anticipate any tax tweaks in this budget,” Jethmalani said.

Aditi Nayar, Chief Economist, Head Research and Outreach of ICRA said she anticipates an upside in tax and non-tax receipts of around Rs 1.2 lakh crore relative to the amount pencilled into the Interim Budget Estimates for FY2025.

Some economist said that if there is any cut in the income tax than fiscal deficit will remain at same levels than it has projected.

“In case there is an income tax cut, then fiscal deficit is expected to be maintained at 5.1 percent of GDP,” Sen gupta said.

Also read: Budget 2024: Higher focus on defence, railways, infra, green power to drive economic growth

Other focus areas
Experts said that the focus areas in the budget will be roads, railways, transportation, and defence.

Apart from this, Debopam Chaudhuri, Chief Economist of the Piramal Group said there are other key areas which need to be looked into, such as affordable housing, small developers, textiles, logistics, and insurance.