Finance Minister Nirmala Sitharaman Surpasses Fiscal Consolidation Expectations in Budget Projections

Finance Minister Nirmala Sitharaman Surpasses Fiscal Consolidation Expectations in Budget Projections

Finance Minister Nirmala Sitharaman has presented fiscal consolidation projections that surpass expectations for the current financial year and Budget Estimates (BE) for the next year.

Fiscal Deficit Challenges

Analysts anticipated challenges in meeting the fiscal deficit, especially as a proportion of GDP, due to lower-than-projected nominal economic growth.

Lower Nominal GDP Growth

The Interim Budget assumed a nominal GDP growth of 10.5%, but First Advance Estimates placed it at 8.9%, impacting fiscal deficit projections.

Revised Estimates (RE) Highlights

  • Fiscal deficit in RE for FY24 is Rs 17.35 trillion, lower than BE’s Rs 17.87 trillion.
  • Proportion to GDP projected to decrease to 5.8% in RE from 5.9% in BE.

Revenue Challenges

Tax revenues were projected to decrease, but non-tax revenue, especially transfers from the Reserve Bank of India, compensated for the loss.

Capital Expenditure Reduction

To improve fiscal consolidation, the finance minister reduced capital expenditure (capex) by over 5% to Rs 9.5 trillion in RE compared to BE.

Budget Projections for Next Year

Fiscal Deficit Projections

Expectations were for a fiscal deficit of 5.2-5.3%, but Sitharaman projected it at 5.1%, expressing commitment to fiscal consolidation below 4.5% by 2025-26.

Revenue and Capex Plans

  • Revenue expenditure for FY25 projected to be higher by around 3% at over Rs 36 trillion.
  • Capex set higher by almost 17% for FY25 at Rs 11.11 trillion.

Allocation Decisions

  • No enhanced allocation for certain schemes.
  • Rationalized subsidies on petroleum, fertilizers, and food.
  • Increased allocation under Mahatma Gandhi National Rural Employment Guarantee Act and production-linked incentive schemes.

Deficit Management

Efforts to contain the revenue deficit at 2% of GDP in FY25 against 2.8% in RE.

Positive Expert Opinions

ICRA chief economist Aditi Nayar notes the higher-than-expected capex and lower-than-projected fiscal deficit suggest healthier expenditure quality. Grant Thornton Bharat’s Vivek Iyer sees fiscal consolidation as a significant credit positive for India from a sovereign rating standpoint.

Multiple Choice Questions (MCQs) with Answers:

  1. What is the fiscal deficit in Revised Estimates (RE) for FY24?
    • A) Rs 17.87 trillion
    • B) Rs 17.35 trillion
    • C) Rs 18.5 trillion
    • D) Rs 16.9 trillion
    • Answer: B) Rs 17.35 trillion
  2. What was the projected fiscal deficit as a proportion of GDP in Budget Estimates (BE) for FY24?
    • A) 5.9%
    • B) 5.8%
    • C) 6.2%
    • D) 5.5%
    • Answer: A) 5.9%
  3. How much was the capital expenditure (capex) reduced in Revised Estimates (RE) for the current financial year compared to Budget Estimates (BE)?
    • A) 2%
    • B) 5%
    • C) 7%
    • D) 10%
    • Answer: C) 7%
  4. What is the finance minister’s target for the fiscal deficit in the next fiscal year (FY25)?
    • A) 5.5%
    • B) 5.1%
    • C) 5.8%
    • D) 4.5%
    • Answer: B) 5.1%
  5. How much higher is the capex set for FY25 compared to Revised Estimates (RE) figures for the current fiscal year?
    • A) 12%
    • B) 17%
    • C) 15%
    • D) 20%
    • Answer: B) 17%