Game plan for fiscal balance: Bat like Dravid, not Pant

The Centre has managed to keep fiscal consolidation on track despite a challenging environment and Rs 1 lakh crore in tax relief for the middle class. Some expenditure compression also helped.
As on date, fiscal deficit is the only operational target for fiscal consolidation. In the revised estimate for 2024-25, govt has fixed its fiscal deficit target to 4.8% of GDP, marginally lower than the earlier estimate of 4.9%.It is projected at 4.4% of GDP in 2025-26.
The budget statement on fiscal policy says since FY 2021-22, adoption of an operationally flexible fiscal consolidation path has served the country well. “India is now set to attain the goal outlined in the Budget for FY 2021-22 and reach fiscal deficit level below 4.5% of GDP in FY 2025-26,” according to the document.
It also said that barring any major macro-economic disruptive exogenous shocks, and while keeping in mind potential growth trends and emergent development needs, the Centre will try to keep fiscal deficit each year (from FY 2026-27 to FY 2030-31) such that govt’s debt is on a declining path to attain a debt-to-GDP level of about 50% (plus/minus 1%) by March 31, 2031, which is the last year of the 16th Finance Commission cycle.
“The Budget outlines its intent of reducing the central govt debt to GDP ratio to 50+/- 1% by 2030-31 from 56.1% projected for 2025-26. Our calculations show that this would align with a fiscal deficit of close to 3-3.3% of GDP, and provides space for a capex target of close to 3-3.5% of GDP by 2030-31,” HDFC Bank economists Sakhshi Gupta and Mayank Kumar Jha said in a note.
The fiscal policy statement says in the post-Covid years, the glide path of fiscal consolidation (with focus on prudence and flexibility) has produced desired results. On the path ahead, the statement adds the Centre will continue to balance development priorities with fiscal prudence.
“The fiscal policy would be grounded in reforms, resilience and readiness. This approach should not only invigorate the growth momentum, but also create necessary fiscal buffers to enable govt to effectively respond to emergent global and domestic challenges,” the statement says .