“The challenge is to provide a strong impetus to domestic growth, while simultaneously demonstrating adequate fiscal consolidation and keeping the net borrowing figure in check,” Aditi Nayar, chief economist, ICRA Limited, said in a press release. “Our baseline estimate is that lower real growth and inflation will feed into a moderation in the expansion of nominal GDP as well as the GoI’s tax collections, which will underpin its revenue math. The growth in direct taxes is likely to outpace that in indirect taxes, with the latter being constrained by customs duty collections following the looming slowdown in trade.”

A lower subsidy burden is expected to contain the growth in revenue expenditure at sub-3 per cent in FY2024, thereby providing room to expand the capex by a sizeable amount. ICRA projects the government to target a double-digit growth in capital expenditure, boosting it to approximately ₹8.5-9.0 trillion in FY2024 from the level of ₹7.5 trillion expected in FY2023. This would provide a fillip to infrastructure development and capacity expansion, amidst tentativeness in private sector capex activity.

ICRA expects the government of India’s fiscal deficit to dip in absolute terms to ₹17.3 trillion in FY2024 from the ₹17.5 trillion estimated for FY2023. However, as a proportion of GDP, the fiscal deficit is expected to moderate appreciably to 5.8 per cent in FY2024 from 6.4 per cent in FY2023, dipping below 6 per cent for the first time since FY2020.

Moreover, the quality of the fiscal deficit is expected to improve in FY2024 compared to the previous year, with expectations of a decline in the revenue deficit and a concomitant rise in the government’s capital expenditure.

In a similar vein, the quality of expenditure will improve from the point of view of the split between revenue and capital spending. Nevertheless, the share of interest payments in the total expenditure will remain elevated at around 24- 25 per cent owing to the sizeable increase in the government’s debt outstanding in the post-COVID period. This will continue to cast a pall on the government’s fiscal metrics, taking the sheen off the other improvements outlined above.

Fibre2Fashion News Desk (KD)