Budget 2024: The math of how the Centre will cut its fiscal deficit, explained

The government has pegged its fiscal deficit target at 4.9% of GDP for the financial year 2024-25, according to the full Budget presented today by finance minister Nirmala Sitharaman. This target is lower than the 5.1% projected in the interim budget in February, and closer to the 4.5% target set for 2025-26.

The new fiscal deficit target marks a 66 basis point reduction from the previous financial year, driven by both lower revenue spending and higher earnings as a percentage of GDP. With this, the government has solidified its aim of bringing down fiscal deficit to 4.5% of GDP by FY26, which would imply a further 44-basis-point reduction in the next Budget.

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In the wake of an unexpectedly poor performance in the General Election, the government loosened its purse strings by announcing a higher revenue expenditure—funds allocated for day-to-day operations—raising it to 11.4% from the 11.2% projected in the interim budget.

Capital expenditure, the second major component of spending, will rise to 3.4% of GDP from 3.2% in FY24. This adjustment means total expenditure is now pegged at 14.8% of GDP, slightly down from 15% in FY24 but higher than the 14.5% anticipated in the interim Budget.

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However, this increase in spending relative to the February budget did not result in the fiscal deficit aim taking a hit as the government also managed to raise its total receipts to 9.8% of GDP from 9.4% in FY24.

The government has maintained a nominal GDP growth projection of 10.5% for FY25, consistent with the interim budget's forecast, although the absolute projected nominal GDP is slightly lower at ₹326 trillion compared to the ₹327 trillion estimated earlier.

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The latest Budget continues to prioritize fiscal consolidation over higher spending, maintaining the stance set in the interim budget.