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Last updated: 31 Oct, 2023  

Accounting.9.Thmb.jpg Fiscal deficit

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Bikky Khosla | 31 Oct, 2023

Fiscal deficit — the gap between expenditure and revenue — may not improve much in the coming two-three years. Recently, an expert from a global rating agency cautioned, adding that with total debt at "pretty high" levels, India's fiscal metrics are "probably the weakest part" of its credit profile. The expert also points out that the government "adds to it by running large deficits year on year". This situation may not change, with the Lok Sabha elections just a few months away.

Recent data shows that our fiscal deficit touched 36 percent of the full-year target in the first five months of 2023-24. It now stands at Rs 6.42 lakh crore in April-August, rising from Rs 6.06 lakh crore in April-July period. So, the concerns are showing up and in an election year, it is unlikely that the Centre would go for a tight fiscal policy, although it has set a target of lowering the fiscal deficit to 5.9 percent this year.

Interestingly, as per professional forecasters surveyed by RBI, combined fiscal deficit of the Centre and states is seen at 8.7 percent of GDP this year, while— as per IMF — India's debt level may increase from 81.0 percent of GDP in 2022 to 81.9 percent in 2023 and 82.3 percent in 2024. This is again a concern, particularly in the light of FRBM Review Committee recommendations which call for reduction of the combined debt level to 60 percent of GDP.

The Centre, which has set a target to lower its fiscal deficit to 5.9 percent this year, wants to bring it below 4.5 percent by 2025-26. However, some global rating agencies are skeptical about this goal and asking for clarity on how it will be achieved in less than three years. It will be interesting to see how the government — which has been seeking upgrade from global ratings agencies — handles this situation in the coming months.

I invite your opinions.

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