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India’s fiscal deficit likely pegged at 4.5% of GDP for FY26, capex spending at ₹11 lakh crore: ICRA
- India's fiscal deficit is likely to be pegged at 4.5 per cent for FY26, entailing a reduction of 25-30 bps over the projected 4.8 per cent of GDP in FY2025, compared to the budgeted target of 4.9 per cent
India's fiscal deficit target for FY2026 is estimated to be set at 4.5 per cent of the gross domestic product (GDP), entailing a reduction of 25-30 bps over the projected 4.8 per cent of GDP in FY2025, compared to the budgeted target of 4.9 per cent. Domestic credit rating agency ICRA estimates the government should target a capital spending of ₹11 lakh crore in Budget 2025.
ICRA Chief Economist Aditi Nayar said last year's record budgeted capital expenditure of ₹11.11 lakh crore is likely to fall short by about ₹1.4 lakh crore, and next year's target should be fixed at last year's level with a focus on keeping borrowing within reasonable limits. Nayar said the capex numbers are trailing the run rate required to reach the Budget target in FY25.
India fiscal deficit, capex estimates by ICRA
Between April and November 2024, capex spending stood at ₹5.13 lakh crore, 46 per cent of the Budget estimates of ₹11.11 lakh crore. “We are looking at a large shortfall in the current fiscal. For next year, we hope to get fiscal space to prioritise capex... For FY26, based on the revenue numbers...a fiscal deficit of 4.5 per cent of GDP will be quite reasonably achieved.”
"That would allow us ₹11 trillion of capex, a growth of 11-12 per cent over the number that we think is feasible for FY25," Nayar told news agency PTI in an interview. She said putting in a larger capex number may not be "prudent" as a larger borrowing and fiscal deficit would push up yields.
To shield the economy from the impact of COVID-19, the government has been spending heavily on infrastructure and building capital assets. It earmarked ₹4.39 lakh crore capex in 2020-21, which increased to ₹5.54 lakh crore in 2021-22. In 2022-23, capex spending was hiked to ₹7.5 lakh crore and in 2023-24, it reached ₹10 lakh crore.
Nayar said the capex push creates positivity in the economy and a virtuous cycle that trickles down to other parts of the economy. “I think capex would be low in FY25, and the fiscal space available should be prioritised for capex. Our forecast suggests that every 10 basis points of additional fiscal deficit would get us another ₹35,000 crore of capital expenditure,” she said.
"Probably better to start with a realistic capex number, a fiscal deficit that would come down in line with a medium-term forecast that will give a reasonable borrowing figure for markets to absorb," Nayar added.
ICRA forecasts a fiscal deficit, which is the difference between government expenditures and revenues, at 4.8 per cent of GDP in the current fiscal year. Nayar also said that GDP growth bottomed out in the September quarter and is expected to recover going forward. The rating agency projects GDP growth of 6.5 per cent for both the current and next fiscal years.
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Business NewsEconomyIndia’s fiscal deficit likely pegged at 4.5% of GDP for FY26, capex spending at ₹11 lakh crore: ICRA
First Published:15 Jan 2025, 05:56 PM IST
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