MUMBAI: Even though political imperatives vastly dominated the first Budget of the PM Modi-led NDA government’s third term, Finance Minister Nirmala Sitharaman has walked the talk on her commitment to fiscal prudence–mostly due to the whopping Rs 2.11 trillion (Rs 2.11 lakh cr) windfall received from the Reserve Bank–and has lowered the fiscal deficit target more than anticipated to 4.9% for this year and to 4.5% for the next. She has walked the fiscal correction path despite expanding the Budget size by a full 1.2 percentage points over the interim budget and 7 percentage points from FY24.
Many expect the fiscal consolidation this year and the next will lead to a sovereign rating upgrade next fiscal–from BBB- with stable outlook to a BBB.
The interim Budget had set a fiscal deficit target of 5.1% but at that time the North Bloc had no hint that the RBI would be surprising everyone with a massive surplus of Rs 2.11 trillion for fiscal 2024. Two other enablers are the spike in tax revenue and higher dividend payouts providing more fiscal space.
Accordingly, the Budget has struck a fine balance by capping the fiscal deficit–gross borrowing is pegged at Rs 14.01 trillion and net borrowing penciled at Rs 11.63 trillion for the year, despite vastly expanding the welfare schemes primarily aimed at farmers, women, and jobless youth as the key state of Maharashtra, where the BJP is facing many a headwind, is going to polls in October along with three other states.
Fiscal deficit that was trending down from FY16 and was at 4.6% in FY20 but shot up to 9.2% in FY21 as the economy was whacked by the pandemic--which saw growth tanking by a full 23.8% in the first quarter of FY21. Deficit came down to 6.8% in FY22 and further down to 6.4% in FY23 and 5.6% (provisional) in FY24.
On the revenue side, the Budget has pegged an 11% rise in tax revenue at Rs 25.84 trillion, up from Rs 23.27 trillion in FY24 (10.9% growth) and Rs 20.98 trillion or 16.2% growth over the previous fiscal. It also expects Rs 1.5 trillion in dividends and profits this fiscal, marginally down from Rs 1.54 trillion in FY24. At this, the share of non-tax revenue to tax revenue will rise to 4% from 3.76% of the total. The budget has also pegged a lower Rs 50,000 crore from asset sales, up from Rs 30,000 crore in FY24.
The Budget sees the primary deficit coming down to 1.4% from 2% and revenue deficit to 1.8% from 2.6%. The populist schemes will eat up Rs 4.28 trillion of the Budget or 1.3% of GDP, down from Rs 4.4 trillion or 1.5% in FY24. The Budget expects nominal GDP grow 10.5% up from 9.6% in FY24 and real growth around 7%, down from 8.2% notched up in FY24.
Capex push
Despite many populist measures, the Budget maintains the capex push in absolute terms allocating Rs 11.1 trillion, up 16.9% over FY24 when it was `9.5 trillion or a 28.4% growth over the previous fiscal