Budget 2024-25 to focus on infra expansion, fiscal consolidation: EY India

EY India said India's economy has shown 'resilience' with GDP expanding by 8.2 per cent in 2023-24 after 9.7 per cent and 7 per cent in the previous two years

The upcoming Budget is expected to emphasise sustaining India's medium-term growth by focusing on infrastructure expansion and ensuring fiscal consolidation, consulting major EY India said in a report on Wednesday. Finance Minister Nirmala Sitharaman is expected to present the Union Budget next month. 

India's economy has shown "resilience" with Gross Domestic Product (GDP) expanding by 8.2 per cent in 2023-24 after 9.7 per cent and 7 per cent in the previous two years, it said, adding that at the same time, the fiscal deficit has narrowed from 9.17 per cent in 2020-21 to 5.6 per cent in 2023-24.

"Looking ahead, the fiscal strategy for 2024-25 aims to strike a delicate balance between boosting capital expenditure and reducing the fiscal deficit," it said.  The report said that with nominal GDP growth estimated at around 11 per cent, the government is expected to have "ample" fiscal space owing to enhanced tax and non-tax revenues and limited revenue expenditure growth.

"The additional fiscal space may be utilised to lower the fiscal deficit to 5 per cent of GDP while increasing capital expenditure to 3.4 per cent of GDP, enabling a growth of 17.5 per cent in FY25 over the previous fiscal year," it said. The Centre aims to bring the fiscal deficit down to 4.5 per cent by FY26.

The consultancy added that to achieve a medium-term growth rate of 7 per cent, India needs to maintain a savings ratio between 31 and 32 per cent of the GDP. Currently, India has a gross savings rate of around 30 per cent. The nominal rate stands around 5.1 per cent.  

"The causes of the recent fall in the nominal household sector financial savings relative to GDP to 5.1 per cent in FY23 should be examined and addressed," said DK Srivastava, chief policy advisor at EY India.

On the expenditure side, the report said that revenue expenditure has been stable in the range of 11 per cent to 13.6 per cent of GDP during FY15 to FY24, excluding the Covid-19 year, when this ratio increased to 15.5 per cent.

Capital expenditure remained less than 2 per cent of GDP between FY15 and FY20. Since the Covid-affected year of FY21, it has remained higher than 2 per cent, showing a sustained increase from 2.1 per cent in FY21 to 3.2 per cent in FY24, it said.

In terms of growth, there was a sharp fall in the growth of revenue expenditure from FY22 onwards. Most of this may be attributable to a fall in the development of subsidies. Correspondingly, growth in capital expenditure was in the range of 24.4 per cent to 39.4 per cent in four consecutive years, from FY21 to FY24, it added.

"This reflects a major thrust towards infrastructure expansion by the GoI on the one hand and a determined policy to reduce major subsidies on the other," it said.