India’s Budget: Balancing Deficit Reduction and Economic Growth

India’s government is contemplating a reduction in the fiscal deficit target from 4.9% to 4.4% of GDP for the fiscal year ending March 2026, amid a growth slowdown where the GDP growth rate recently hit 5.4%, the slowest in nearly two years. Finance Minister Nirmala Sitharaman will present the national budget on February 1, marking the coalition government’s first full-year budget since assuming power in June. The economic growth outlook has been revised to 6.4% for the current fiscal year, with a nominal GDP growth target for next year set at 10.5%. Following a pandemic surge to 9.2%, the government has been steadily reducing its budget deficit and aims for it to remain below 5% this fiscal year, aided by a record dividend from the central bank. Public expenditure is projected to decline to 3.2% of GDP by fiscal year 2025-26. Consumer price inflation was recorded at 5.22% in December, prompting the Reserve Bank of India to consider a shallow monetary easing cycle of about 75 basis points. Moreover, the government plans to decrease its disinvestment target for the current financial year to below 300 billion rupees ($3.47 billion) from an initial 500 billion rupees, as divestment receipts have significantly lagged. The RBI is navigating a complex economic environment, balancing the need for easing against inflation and currency depreciation pressures.

Source: CNBC