The forthcoming Budget is expected to focus on sustaining India's medium-term growth by expanding infrastructure and guaranteeing fiscal consolidation, according to consultancy firm EY India in a study released on Wednesday.

It stated that India's economy has demonstrated "resilience," with GDP growing by 8.2 percent in 2023-24, up from 9.7 percent and 7.7 percent the preceding two years. At the same time, the fiscal deficit has reduced from 9.17% in 2020-21 to 5.6% in 2023-24.

"Looking ahead, the fiscal strategy for 2024-25 aims to strike a delicate balance between boosting capital expenditure and reducing the fiscal deficit," it said, adding that with nominal GDP growth estimated at around 11%, the government is expected to have "ample" fiscal space due to increased tax and non-tax revenues and limited revenue expenditure growth.

"The additional fiscal space may be utilized to lower the fiscal deficit to 5 percent of GDP while increasing capital expenditure to 3.4 percent of GDP, enabling a growth of 17.5 per cent in FY25 over the previous financial year," according to the statement. The government intends to reduce the fiscal deficit to 4.5 percent by FY26. The firm noted that in order to achieve a medium-term growth rate of 7%, India must maintain a savings ratio of 31 to 32% of GDP. Currently, India has a gross savings rate of approximately 30%. The nominal rate is roughly 5.1 percent.

"The causes of the recent fall in nominal household sector financial savings relative to GDP to 5.1 percent in FY23 should be examined and addressed," said DK Srivastava, principal policy advisor at EY India.

According to EY India, revenue expenditure has been consistent between 11% and 13.6% of GDP from FY15 to FY24, with the exception of the Covid-19 year, when the percentage jumped to 15.5%.

Capital expenditure remained less than 2% of GDP between FY15 and FY20. Since the Covid-affected year of FY21, it has maintained over 2%, with a steady increase from 2.1% in FY21 to 3.2% in FY24. In terms of growth, revenue expenditure growth slowed sharply beginning in FY22. The majority of this might be attributed to a decrease in the development of subsidies. 

Furthermore, capital expenditure increased by 24.4% to 39.4% during four years, from FY21 to FY24. "This reflects a major thrust towards infrastructure expansion by the Government of India on the one hand and a determined policy to reduce major subsidies on the other," according to the report.