Analysts warn of ‘risks' to FY26 fiscal deficit target as FM Nirmala Sitharaman shares 2023 Budget
1 min read . Updated: 01 Feb 2023, 07:45 PM IST
PremiumThe government's budget gap hit a high of 9.5% of GDP in 2020-21 amid the COVID-19 pandemic. While it has narrowed since then, the numbers remain well above the medium-term goal of 4.5% of GDP by 2025-26. The government is targeting a budget deficit of 5.9% of GDP for 2023-24.
Finance Minister Nirmala Sitharaman announced on Wednesday that the federal government would target a budget deficit of 5.9% of GDP for 2023-24. But even as as the administration continues to narrow the budget gap, analysts have flagged concerns about the feasibility of achieving a fiscal deficit target of 4.5% of GDP by 2025-26.
The government's budget gap hit a high of 9.5% of GDP in 2020-21 amid the COVID-19 pandemic. While it has narrowed since then, the numbers remain well above the medium-term goal of 4.5% of GDP by 2025-26. The government is targeting a budget deficit of 5.9% of GDP for 2023-24, while the deficit was 6.4%.
"The current pattern suggests that perhaps there could be some upward pressure on expenditure, especially if they (government) continue with this focus on capex," Moody's senior vice president Christian de Guzman told Reuters. Moody's pegs India's debt-to-GDP ratio at 85% for 2023/24.
In an earlier statement the ratings agency had said that the narrower fiscal deficit underscores the government's commitment to longer-term fiscal sustainability. It also added that India's high debt burden and weak debt affordability remain key constraints that offset its fundamental strengths.
Also read: Union Budget 2023 Live Updates
“Essentially, it (the fiscal glidepath) implies further consolidation of about 0.7% of GDP for each of the following two fiscal years. If we look at the recent deficit reduction trend, it seems like it would be a bit more difficult and absurd to achieve that level of deficit reduction," added Jeremy Zook, director for Asia Sovereign Ratings at Fitch Ratings.
Global economic headwinds, geopolitical risks, and high commodity prices could potentially pose risks to the government's fiscal math, the analyst told news agency Reuters.
Guzman however noted that there was some credibility in terms of the revenue and expenditure targets in the Modi government's latest Budget. There is some greater efficiency in tax collections, he added, and that could support the government's revenue.
Meanwhile, Kotak Investment Advisors' Lakshmi Iyer dubbed the 2023 Budget a ‘multi-dimensional’ one. “The 3 Cs which stand out are -- capex increase, consumption boost, capital gains tax status quo. Mindful of the fact that there is hardly any space for fiscal expansion, FY24 fiscal deficit is pegged at 5.9% and expected to see progressive reduction by FY 2026," she said.
(With inputs from agencies)
