Government could focus on reducing fiscal target, says Bank of Baroda's Madan Sabhnavis

anticipates potential increases in the limits for Section 80C deductions and interest on home loans, which would encourage financial savings.

The government is expected to focus on additional social welfare expenditure, capital expenditure, and more crucially, reducing the fiscal deficit on the back of a robust economy and substantial contributions from the Reserve Bank of India and public financial institutions, says Madan Sabhnavis, Chief Economist at Bank of Baroda.

In an exclusive conversation with Moneycontrol, Sabhnavis said that the budget will likely aim to bring the fiscal deficit closer to 5 percent, paving the way for a 4.5 percent target next year, as stated in the Fiscal Responsibility and Budget Management (FRBM) Act.

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On the consumption front, Sabhnavis highlights the need for the government to reduce income tax rates or widen the income tax slabs, thereby increasing disposable income for individuals.

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This move, according to Sabhnavis, is essential due to the high cumulative inflation over the past few years, affecting real consumption. He also anticipates potential increases in the limits for Section 80C deductions and interest on home loans, which would encourage financial savings.

Sabhnavis further acknowledges the expectation of increased rural and agricultural expenditure, though he predicts only marginal increases based on election promises. He believes the overall expenditure can be managed within the fiscal deficit target of 5 percent.

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Regarding investments, Sabhnavis is of the view that private sector investment has lagged despite a lower corporate tax rate. He sees an opportunity to support MSMEs through a Production Linked Incentive (PLI)-like scheme, requiring a modest budget outlay, which could address employment issues and boost the MSME sector.
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