Shunning fiscal profligacy despite a strong election calendar in the next 18 months, the Centre on Wednesday pegged the fiscal deficit target for 2023-24 at 5.9 per cent of GDP, lower than the revised estimate of 6.4 per cent (of GDP) for 2022-23.

Also, the RE for FY23 fiscal deficit has been retained at 6.4 per cent, bringing relief to the investor community and economy watchers as no fiscal slippage is expected this fiscal.

Sitharaman also announced that the Centre plans to adhere to the earlier announced fiscal glide path and would aim to bring down the fiscal deficit to below 4.5 per cent of GDP by 2025-26.

Meanwhile, given the global headwinds and macroeconomic uncertainty arising from ongoing Russia-Ukraine conflict and developments in China (affected by Covid-19 situation), the Centre has budgeted nominal GDP growth at 10.5 per cent for 2023-24, lower than 11 per cent growth budgeted last fiscal. Tax revenues are now budgeted to grow between 11 per cent and 12 per cent in FY24.

Expenditure compression

For 2023-24, to keep a tight lid on the fisc, the Centre is betting big on expenditure compression in fertilizers and food subsidy besides a cut in MGNREGA (job guarantee scheme) allocation to help achieve the reduced fiscal deficit target for FY24.

The Centre has gone conservative on revenues in 2023-24, maintained optimism on disinvestment, but more importantly gone in for huge cut in expenditure in subsidy bill and MGNREGA to the tune of ₹1.7-lakh crore. While the fertilizer subsidy budgeted is coming down from ₹2.25-lakh crore to ₹1.75-lakh crore in 2023-24, the food subsidy bill is coming down from ₹2.87-lakh crore to ₹1.97-lakh crore. There is also savings of about ₹29,000 crore in MGNREGA allocation given that the country has returned to full recovery from the pandemic.

Madan Sabnavis, Chief Economist, Bank of Baroda, said the fiscal deficit has been managed even while assuming a lower GDP growth of 10.5 per cent for 2023-24. This is through expenditure management where savings on subsidy and MGNREGA have provided room to increase capex.

Aditi Nayar, Chief Economist, ICRA, said: “The fiscal deficit targeted in FY24 is slightly higher than our projections, although this is on account of the unexpectedly strong jump in capex.”

Puneet Pal, Head – Fixed Income, PGIM India Mutual Fund, said the fiscal deficit and the borrowing numbers are as per expectations and yields are down by 6-10 bps across the curve with a steepening bias. “We think it is more of a relief rally in the bond market in absence of any negative surprise... we expect the 10-year benchmark bond yield to trade in a range of 7.15 per cent to 7.35 per cent till the fiscal year ends.”

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