According to two government officials, India intends to reduce its fiscal deficit by at least 50 basis points in 2024/25 from this year's target of 5.9 percent of GDP, while also increasing capital spending by up to 20%. Devendra Pant, an economist with India Ratings, believes that reducing the budget deficit while increasing capital spending will be dependent on increased revenues and measures to reduce subsidies.
Cuts to social spending and subsidies would be unusual for a government approaching a national election in a few months, but Prime Minister Narendra Modi is generally anticipated to win a third term.
On February 1, Finance Minister Nirmala Sitharaman will present the 2024/25 budget.
According to one of the two sources, the idea to reduce the fiscal deficit by at least 50 basis points is being examined with alternative scenarios for the fiscal year beginning in April.
Both officials also stated that the government is optimistic of hitting its 5.9 percent objective for the fiscal year that ends on March 31. The government is attempting to increase capital investment on infrastructure to Rs 12 trillion ($144.59 billion) from Rs 10 trillion in the current fiscal year.
Despite rising inflation reducing consumption in the Asian country, the government's push to increase infrastructure investment has been the key driver in making India one of the world's fastest growing economies in recent years.
A significant reduction in the fiscal deficit will be welcomed by international investors and rating agencies who are skeptical that India will meet its aim of reducing the deficit to less than 4.5 percent of GDP in the next two years.
The government is also wary of the aim since, following its inclusion in the JPMorgan and Bloomberg emerging market indexes, a new set of investors will be carefully scrutinizing the government's debt levels. An email requesting response from India's finance minister was not immediately returned.
