Budget 2024: FY25 fiscal deficit likely to be estimated at 5.5% of GDP, say economists

Budget 2024: The Union Budget 2024-2025, set to be presented on February 1, 2024, will be an interim budget, also called vote on account, ahead of the general elections. The Budget 2024 is expected to focus on maintaining continuity of policies. 

Analysts and economists expect no significant announcements by the government in the upcoming budget. However, focus is likely to be on providing support to rural growth. The government is expected to stick to its path of fiscal consolidation, without compromising on quality of expenditure. 

The interim budget 2024 is to be presented against the backdrop of a 7.3% Gross Domestic Product (GDP) growth in the current fiscal. Economists believe the strong momentum will allow the government to work towards the path of fiscal consolidation. 

The central government’s net tax revenue is likely to exceed budget estimates by ₹80,000 crore in current fiscal, while non tax revenue is also expected to exceed budget estimates by ₹50,000 crore. Similarly, expenditure may also exceed budget estimates by around ₹60,000 crore, economists said.

Also Read: Cut deficit to 5.4% in FY25: Ind body to govt

Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India believes gross tax revenue at 11.6% of GDP in FY24 is likely to be a 16 year high. In FY25, he expects gross tax revenue to be at the highest ever in the last 2 decades. 

“We believe the fiscal deficit in absolute terms could decline in FY24 but as a % of GDP it could be at 5.9% and likely to be set at 5.5% in FY25 Interim Budget. The final budget to be presented in July could set it at a lower level of 5.3%-5.4% depending on GDP numbers that will be released in May 2024,” Ghosh said.

He believes net market borrowing of the Centre in FY25 will be around ₹11.7 lakh crore and with repayments of ₹3.6 lakh crore, gross borrowing is expected at ₹15.3 lakh crore. 

However, the government will adjust in switches and this could adjust gross borrowings lower than ₹15 lakh crore. Even net issuance of T-Bills to the tune of ₹50,000 crore is expected, he added.

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Sonal Badhan, Economist at Bank of Baroda also expects the centre to achieve its fiscal deficit target of 5.9% in FY24, with risks titled to the upside. These risks emerge from: lower than anticipated nominal GDP growth, and higher than budgeted expenditure. 

From these levels, she expects the government to reduce the deficit target by 50 bps in FY25BE, thus targeting a 5.4-5.5% range in the base case scenario. 

“Fiscal deficit in FY25 will get support from a normalization in domestic conditions. In the year ahead, even as global growth is expected to slow down, domestic growth is expected to remain broadly stable. This will impact both real and nominal GDP, thus giving more room for the government to push the fiscal deficit ratio to a lower level,” Badhan said.

Further, as the economic activity remains steady and is driven by domestic factors (consumption and investment), revenue growth of the government will also improve. Lower rate of inflation will help boost consumption and government’s infra spending will provide support to investments, she added.

Also Read: Budget 2024 Expectations: From capex target to fiscal deficit, CareEdge predicts these changes for India's economy

Assuming this, nominal GDP is estimated to register around 10-11% growth in FY25, slightly up from 8.9% in FY24, fiscal deficit is expected to come in at around ₹17.5 - 18 lakh crore, implying a deficit of 5.4-5.5%.

For FY25, Ghosh expects real GDP growth to be around 6.8% and with deflator expected at 4.2%, nominal GDP is estimated to grow by 11.0% to ₹329 lakh crore in FY25 budget.

Economists expect the budget 2024 to focus on steering rural growth on the back of weak monsoon and subdued Rabi sowing. Enhanced spending on MGNREGA, PM KISAN, and PMAY can be expected. 

Markets will also keep a watchful eye on the government’s borrowing program, which is anticipated to increase only marginally next year.

Madhavi Arora, Lead Economist at Emkay Global Financial Services also believes the upcoming interim budget would lack any big bang announcements but is likely to be watched for the pace of fiscal consolidation and policy priorities ahead.

Also Read: Budget 2024: Any major sops unlikely, expect relief measures for rural sector, says Madhavi Arora of Emkay Global

“While economic trade-offs stay challenging amid reducing fiscal impulse for growth, policy prerogatives and spirit will not get derailed, in our view. Although the risk of competitive populism has abated at the central level, we do expect a few relief measures for the rural/farm/welfare sector,” said Arora.

She expects the capex/revex mix to further improve, with capex/GDP projected at 3.3%. The gross tax/GDP ratio is set to stay steady at 11.4% despite easing tax growth. Overall, she projects FY25E GFD/GDP at 5.4% after 5.9% in FY24E, implying net and gross borrowing at a still-significant ₹11.5 lakh crore and ₹15.2 lakh crore, respectively. 

Read Budget 2024 Expectations LIVE Updates here