Budget 2025: India aims to bring down fiscal deficit on track

India will once again look at managing its finances in a disciplined manner. The budget on February 1 will likely show the government's commitment to bringing down the fiscal deficit again.

What exactly is the fiscal deficit?

It represents the gap between the government's income and expenditure. Think of it as the financial bridge between what the government earns and what it spends. The government is all set to achieve its target for this year.

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Finance Minister Nirmala Sitharaman set the stage by announcing a bold fiscal deficit target of 4.9 per cent of GDP for this year – a significant drop from the previous year. So, how does the government cover the shortfall in revenue? The answer lies in strategic borrowing. The government floats government securities, issues bonds, and even taps into savings schemes to secure the necessary funds.

The Reserve Bank of India also transfers huge sums of money from the excess on its balance sheet. As we approach budget 2025, all eyes are on the finance minister's announcement. The finance commission recommended reducing the fiscal deficit further to 4.5 per cent by FY 2026. With the economic survey projecting GDP growth between 6-6.5 per cent, the government is poised to re-evaluate its fiscal strategy.

Data earlier this month indicated that the nominal growth for this fiscal year is 9.7 per cent, which is below the budget target of 10.5 per cent. India's real growth is projected to have decreased to 6.4 per cent, according to initial advance estimates.

This is due to an unexpected slowdown in the September quarter, during which growth reached a near two-year low of 5.4 per cent. Despite nominal growth data falling short of the objective set in budget 2024, experts predict that restrained capital spending and a surge in revenues will keep the deficit aim in control.