India’s Economy Faces Risks Ahead of Interim Budget
As the Interim Budget approaches, experts and analysts are closely monitoring key indicators that could shed light on the fiscal direction of the Indian government. According to a pre-budget survey conducted by credit rating agency CareEdge, 86% of participants expressed optimism about India’s economic growth outlook. However, the survey also highlighted the potential risks to the economy, including rising geopolitical tensions and subdued job creation.
One of the major points of speculation is the amount allocated for capital expenditure, with many respondents anticipating a higher capex in FY25 compared to the current capital outlay of Rs 10 lakh crore. Additionally, there are expectations regarding tax cuts and GDP growth, with analysts predicting moderate growth ranging between 6.5-7% for FY25. However, there is little expectation for a reduction in income tax rates this year.
Another key concern is the fiscal deficit, with 41% of respondents anticipating a minor slippage from the fiscal deficit target of FY24. Despite this, a significant 29% believe that the deficit could be below 5.9%, indicating a divergence in opinions regarding the country’s fiscal health.
The government had previously set a medium-term target of restricting the fiscal deficit to around 4.5% of GDP in FY26. However, with the fiscal deficit likely to print at around 6.0% of GDP in FY24, CareEdge suggests that it would be prudent to aim for a deficit of around 5.3% of GDP in the coming year.
Amidst these discussions, there are varying opinions on the best course of action for the government. Some experts argue that it would be wise to attempt to bridge half of the required consolidation in the coming year and budget for a deficit of around 5.3% of GDP. This sentiment reflects the complexity of the economic challenges facing India and the differing perspectives on how to address them.