International Monetary Fund or IMF stated in its latest Article IV consultation with India the gross fiscal deficit (GFD) of central government is estimated at 4.8% of GDP in 2024-25, which stands lower than the budgeted 4.9%. As announced in 2021, GFD has been set at 4.4% for 2025-26 in keeping with the last mile target of below 4.5%. The central government has also announced a new glide path with debt-GDP ratio as the fiscal anchor. The government would endeavour to keep GFD each year during 2026-27 to 2030-31 such that the central government debt is on a declining path to attain a debt-GDP ratio of about 50 (+/-) 1% by March 31, 2031.
IMF noted that the glide path marks a move away from a regime characterized by rigid fiscal rules towards more transparent and operationally flexible fiscal standards in tune with the time of intensified uncertainty in the global economy. The choice of fiscal anchor aligns well with the government’s sustained efforts to promote fiscal transparency through disclosure of off-budget borrowings. It is expected that the debt-GDP based fiscal consolidation strategy would help rebuild buffers and provide requisite space for growth-enhancing expenditures.
In 2023/24, the fiscal deficit narrowed, while capital expenditure continued to increase, supported by robust revenue growth, subsidy reduction on declining commodity prices, and restraint in central government recurrent expenditure. For 2024/25, high RBI dividends, buoyant personal income tax revenue, and continued commodity price declines will allow the central government to narrow the deficit while introducing measures to support job creation.