India's budget deficit could narrow to 6.3% next year, report says

FM Nirmala Sitharaman’s Budget will show if improved tax revenues were enough to offset a shortfall in income from asset sales

By Vrishti Beniwal

India is on track to meet its budget deficit target this year and will likely aim to narrow the gap to 6.3% of gross domestic product next year, according to the nation’s largest lender.

The Budget on Feb. 1 should allow for very gradual fiscal consolidation to complement the economy’s slow recovery from the pandemic, State Bank of India economist Soumya Kanti Ghosh wrote in a research report Wednesday. He expects about 8% growth in expenditure and 10.8% increase in receipts, while estimating gross market borrowings at 12 trillion rupees ($161 billion) in the year starting April 1.

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India’s 6.8% fiscal deficit goal for the current year is narrower compared to last year, but still wider than the shortfall seen in the pre-pandemic years. Finance Minister Nirmala Sitharaman’s Budget next month will show if improved tax revenues were enough to offset a shortfall in income from asset sales.

“The main objective of the Budget should be to create an environment that will give further impetus to growth,” by giving higher weight to a short-term stabilisation policy rather than long-term policy, Ghosh said.

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