Finance Minister Nirmala Sithraman on Friday reiterated the government’s commitment to reducing the fiscal deficit.
“The government continues to uphold its commitment to reducing the fiscal deficit. Aided by buoyant revenue generation, restrained revenue expenditure growth and healthy economic activity, the fiscal deficit is estimated to decline further from 5.6 per cent of GDP in FY24 (provisional actuals) to 4.9 per cent in FY25,” she said, while inaugurating ‘The Kautilya economic conclave,’ here.
“The commitment to fiscal discipline will not only help keep bond yields in check, but will translate to lower economy-wide borrowing costs,” she said. Further, she added that the quality of government expenditure continues to improve. Capital expenditure is budgeted to increase by 17.1 per cent to ₹11.1 lakh crore in FY 2024-25. This amounts to 3.4 per cent of GDP in FY25. Additionally, a larger proportion of fiscal deficit is now accounted for by capital outlays, indicating an increasingly investment-oriented deficit financing.
“The decline in commodity prices has facilitated the lowering of the budgeted allocation for subsidies on fertiliser and fuel. This has contributed to restraining the growth in revenue expenditure, which is estimated to increase by 6.2 per cent YoY,” she said.
Stating why the India story will provide a unique opportunity for thinking about policy, she said India’s creditable economic performance in the recent decade was underscored by its leapfrog from the 10th to the 5th largest economy in a matter of five years, sustained high growth rates, and inflation maintained well within the comfortable range. “While it took us 75 years to reach a per capita income of $2,730, as per IMF projections, it will take only five years to add another $2,000,” she said.
The upcoming decades will see the steepest rise in living standards for the common man, truly making it a period-defining era for an Indian to live in. This is being achieved with declining inequality, as the Gini coefficient for rural India declined from 0.283 to 0.266, and for urban areas it declined from 0.363 to 0.314. “I expect these improvements to continue as the effects of the last ten years of economic and structural reforms manifest more thoroughly in the data in the coming years as the Covid shock fades from the economy,” she said.
Highlighting, India’s economic rise in the coming decades from the policy point of view, she said while India will continue to grow over the decade, the global backdrop is no longer the same. In the early 2000s, emerging markets like China grew relatively more easily due to a favourable global trade and investment climate. This poses a potential challenge (and an opportunity) for India. While simultaneously pushing for diplomacy and cooperation – as we did during our G20 Presidency – India must develop its domestic capacity to develop sustainably.
“India seeks to double its per capita income in a matter of a few years for its 1.4 billion strong population (which makes up 18 per cent of the global total) in a fragmented and fractured world where several persistent conflicts may worsen, posing a threat to global peace that is the bedrock of prosperity,” she said.
Further, the development journey will have to contend with the twin challenges of dealing with the legacy emissions of the developed world and managing India’s energy transition. The balancing act requires a “whole-of-government” approach and contextualised solutions unique to India. Moreover, India’s energy demand and energy use practices have something to offer the world, such as the food-to-feed balance, she said.