Union Finance Minister Nirmala Sitharaman with B20 India Chair and Tata Sons Chairman N. Chandrasekaran and Confederation of Indian Industry (CII) President R Dinesh during a special plenary session on ‘Key Priorities for Sustained Global Economic Recovery’ at B20 Summit India 2023, in New Delhi.
Credit: PTI photo
New Delhi: Urging the central government to stick to its fiscal deficit targets of 4.9 per cent for the current financial year (FY25) and 4.5 per cent for the year beginning April 2025 (FY26), industry body Confederation of Indian Industries (CII) has said that overly aggressive targets beyond this would adversely affect economic growth.
CII has welcomed the announcement in the last Union Budget (2024-25) to keep the fiscal deficit at levels that help reduce the government’s debt to GDP ratio.
In preparation for this, the forthcoming budget could lay out a glide path to bring the central government’s debt to below 50 per cent of GDP in the medium-term (by 2030-31), and below 40 per cent of GDP in the long-term, CII said in its suggestions for the Union Budget 2025-26.
Such an explicit target would have a positive impact on India’s sovereign credit rating, and further, on the interest rates in the economy in general, it added.
To aid longer-term fiscal planning, the CII suggested that the government should consider instituting Fiscal Stability Reporting. This could include issuing annual reports on fiscal risks under different stress scenarios and the outlook for fiscal stability. The exercise will help forecast potential economic headwinds or tailwinds and assess their impact on the fiscal path.
The reporting can also include long-term (10-25 years) forecasting of fiscal positions accounting for impact of factors like economic growth, technological change, climate change, demographic changes, CII suggested.
The industry body underlined that several countries have adopted this proactive policy, ranging from 10 years in Brazil to 50 years in the UK.
In the last Union Budget presented in July this year, Finance Minister Nirmala Sitharaman pegged the fiscal deficit for the current financial year at 4.9% of GDP. She had also announced that the government would pursue a broad path of fiscal consolidation to attain a level of fiscal deficit lower than 4.5% of GDP by FY 2025-26.
“The fiscal management has maintained the perfect balance between the fiscal deficit and fiscal support to growth. This has provided macroeconomic stability to the economy and helped build resilience in an environment of great global economic uncertainty,” said Chandrajit Banerjee, Director General, CII.
Banerjee further added that in addition to the “fiscal prudence at the centre, fiscal prudence at the state
level is equally crucial for the overall macroeconomic stability and
fiscal sustainability.”