In a bid to adhere to fiscal discipline, the upcoming Interim Budget is expected to maintain the medium-term glide path, targeting a fiscal deficit of 5.2% in FY25 after buoyant revenues likely ensure the 5.9% target is met in the current fiscal year. The trajectory includes achieving a 4.5% deficit by FY26. However, sources indicate this will necessitate addressing challenges such as compressing the revenue deficit, maintaining more moderate growth in capital expenditure compared to previous budgets, and pursuing aggressive disinvestment.

The fiscal glide path is crucial for India to curb general government debt (GGD) and prevent its escalation. In response to concerns raised by the International Monetary Fund regarding India's GGD potentially exceeding 100% of the GDP under a worst-case scenario by FY28, the finance ministry has reaffirmed the Centre's commitment to achieving its fiscal consolidation target.

To align with the glide path, the Union government may strive to maintain capital expenditure at around 3% of GDP in FY25, slightly lower than the budgeted 3.3% in FY24. Simultaneously, revenue expenditure could see compression to below 11% from the 11.6% recorded in FY24, facilitating a 70 basis points reduction in the fiscal deficit.

Icra chief economist Aditi Nayar anticipates the FY25 fiscal deficit to be targeted at around 5.2-5.3% of GDP, aiming to bridge the gap between the FY24 fiscal deficit and the medium-term target. The Centre, which has recently accelerated budget capital expenditure growth, may continue this trend in FY25, with analysts projecting a growth of around 10%, reaching close to Rs 10.95 trillion. However, concerns linger regarding the possibility of missing the FY24 budget estimate if momentum slows ahead of the general elections in April.

With these estimates, the Centre's total expenditure is expected to rise to around Rs 47 trillion in FY25, indicating an annual growth of 4.4% over the FY24 budget estimate. While revenue expenditure is projected to increase to Rs 36.18 trillion in FY25, up 3.4% year-on-year, the cautious approach aims to avoid disruptions to current subsidies on food, fertilizer, and fuel.

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