Govt confident of reducing fiscal deficit to 4.5% of GDP by FY26: Exp secy

Fiscal deficit overshot from a target of 3.5% to 9.5% of GDP due to higher spendings by the government to stimulate the economy amid the pandemic

India GDP
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With the country’s fiscal deficit having overshot from a target of 3.5 per cent to 9.5 per cent of the Gross Domestic Product (GDP), Expenditure Secretary T V Somanathan has said the government is confident of pulling it back to 4.5 per cent of the GDP by 2025-26 fiscal.

Somanathan said the target is achievable considering a nominal GDP growth of 10 per cent every year.

Related news: Fiscal deficit at 9.5% for current year, 6.8% for 2021-22

The country exceeded its fiscal deficit target by a wide margin due to higher spendings to stimulate the economy amid the pandemic. The fiscal deficit — the excess of government expenditure over its revenues — has been pegged at 9.5 per cent of the gross domestic product (GDP) in the current fiscal ending March 31, as per the revised estimate.


The fiscal deficit for 2021-22, has been pegged at 6.8 per cent of GDP, which will be further lowered to 4.5 per cent by the fiscal ending March 31, 2026, the expenditure secretary said.
“We are very serious about bringing it (deficit) down. 9.5 per cent to 6.8 per cent is very much achievable and after that if you look at 10 per cent (nominal) growth per annum, if you look at a tax buoyancy of 1.1 per cent and if you look at the fact that such extraordinary expenses will not be there in the future years, every year cannot be a COVID year, I think we are very confident of reaching below 4.5 per cent,” Somanathan told PTI.

He said the fiscal deficit target has been set keeping in mind the estimate of a 5-6 per cent real GDP growth over next four years, while nominal GDP will be at least 44 per cent higher than what it is today.

“Let us assume (real GDP) growth to be 5-6 per cent, and inflation at 4-5 per cent, we will get to 10 per cent (nominal growth). Most likely we will get to 11 per cent (nominal growth). So 44 per cent growth in GDP denominator is almost certain. So on that GDP our deficit will be 4.5 per cent. I think we are quite confident we will reach it,” he said.

In its analysis of the recently-presented budget, S&P Global Ratings had said that India’s budget for the next fiscal is an effort of the government to shore up economic recovery, but fiscal consolidation would pose a stout challenge to policymakers going forward.

“The prospect of consolidation from these heights, while maintaining a significant degree of support for the economy, poses a stout challenge to Indias policymakers,” S&P had said.

(With inputs from agencies)