Budget 2024: Will India meet its fiscal deficit target of 5.9% of GDP for this year?

The government, citing robust tax collections as a significant contributing factor, expresses confidence in meeting the fiscal deficit target.

As the February 1 date for the Union Budget gets nearer, questions over India's fiscal deficit are coming to the fore.

Finance Minister Nirmala Sitharaman will table the Union Budget for 2024-25 in Parliament on February 1. This will be her sixth consecutive year of presenting the budget under the Narendra Modi government. Given the Lok Sabha elections in April-May in 2024, the presentation will take the form of an interim budget rather than a comprehensive full-year budget.

Adhering to parliamentary tradition during election years, the interim Budget enables the government to address essential expenditures until the new government assumes office.

As a key metric in a government's budget speech, fiscal deficit represents the gap between the government's income and expenditure. It also indicates the total amount that the government needs to borrow to cover its expenses. Persistent and elevated fiscal deficits can give rise to apprehensions regarding a government's capacity to fulfill its financial commitments without relying heavily on extensive borrowing. This, in turn, runs the risk of economic difficulties such as inflation and heightened interest rates.

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Minister of State for Finance Bhagwat Karad has said that the government is poised to meet its fiscal deficit target of 5.9 percent of the gross domestic product (GDP) for the financial year 2023-24.

For the first seven months of the financial year 2013-24, India's fiscal deficit stood at Rs 8.04 lakh crore ($96.86 billion), accounting for 45 percent of the projected estimate for the entire year, according to data released by the government in November.

The government is facing challenges in achieving its divestment objectives for this financial year. As of December 13, it has garnered a mere Rs 10,050 crore from the sale of stakes in state-owned enterprises, considerably short of the annual target of Rs 51,000 crore.

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It makes makes sense to explore opportunities for generating additional revenues to meet the demands of expenditure. The government, citing robust tax collections as a significant contributor to total income, has expressed confidence in meeting the fiscal deficit target.

Karad acknowledged the difficulty in accurately forecasting the proceeds from divestment for 2023-24 because of various factors.

India has the capacity to accommodate supplementary spending on subsidies and rural unemployment programmes without necessitating an adjustment to its fiscal deficit target of 5.9 percent set for this fiscal, the International Monetary Fund said in a report in October.

Many economists, however,  have voiced concerns that the fiscal deficit for FY24 may surpass the budgeted target primarily due to an elevated subsidy burden. The fiscal deficits for both 2021-22 and 2022-23 had surpassed the initial projections.

Under the current circumstances, the prospect of significant economic growth or unexpected fluctuations in commodity prices carries the potential to elevate the fiscal deficit, creating challenges in reaching the medium-term target.