Centre expected to maintain fiscal discipline in Interim Budget 2024

Interim budget likely to prioritise fiscal consolidation over populist spending, anticipating fiscal deficit at 4.5% of GDP by FY26

As the central government prepares for the interim budget for the financial year 2024-25 (FY25), insiders familiar with the deliberations suggest that fiscal discipline will take precedence over populist spending or incentives in the run-up to the general elections in the summer, according to The Economic Times (ET).

The post-Covid-19 fiscal consolidation plan outlines a target of reducing the fiscal deficit to 4.5 per cent of gross domestic product (GDP) by FY26 from the current year's budgeted 5.9 per cent. While the exact figures are being finalised, indications suggest that the fiscal deficit for FY25 may be maintained at the current fiscal level or potentially reduced, despite expectations of double-digit nominal GDP growth.

Finance Minister Nirmala Sitharaman had earlier stated that there would be no significant announcement in the interim budget, indicating there may be a vote of account. A vote on account is designed to meet expenditure until a new government is sworn in after the upcoming elections.

Bearing Nirmala Sitharaman's announcement in mind, various departments and ministries were advised to exercise prudence in spending assessments for the next financial year during pre-budget discussions. The finance ministry expressed concerns about potential inflationary pressures that could arise from consumption boosters, potentially hindering efforts to control prices. Inasmuch, officials were asked to be "judicious" with their expenditure demands and exercise greater fiscal discipline, as reported by ET.

While revenue spending may see constraints, there could be an increase in capital expenditure (capex) in FY25 to stimulate economic growth. The government has raised its capex consistently since FY22, but the rate of increase may be more modest in FY25 as private investment is expected to gain momentum.

Fiscal prudence is crucial for the government, considering the high debt and interest burden. The anticipated fiscal deficit targets and spending priorities will set the tone for economic policies in the coming financial year.