New Delhi: A research report from the Union Bank of India indicates that the Government will prioritize fiscal consolidation and economic growth in the upcoming Union Budget.
According to the report, the government aims to lower the fiscal deficit to 4.5 percent of Gross Domestic Product (GDP) by Financial Year 2026 (FY26), a decrease from the projected 4.8 percent in FY25.
The report further states, "We anticipate the absolute fiscal deficit will rise from the revised estimate of Rs.15.7 lakh crore to Rs.16.2 lakh crore in FY26."
This fiscal target aligns with the government's strategy to achieve macroeconomic stability and maintain manageable public debt levels.
The government is expected to stay committed to its fiscal consolidation strategy, gradually reducing the fiscal deficit in the coming years. This initiative is part of a larger effort to mitigate inflationary pressures, control borrowing costs, and sustain investor confidence in a slowing economic environment.
In FY25, the fiscal deficit has faced challenges due to lower-than-anticipated capital expenditure and increasing subsidy obligations stemming from geopolitical factors.
The report emphasizes that while government investment in infrastructure has not met budgeted expectations, fiscal consolidation is likely to surpass targets mainly due to a decrease in expenditure as a percentage of GDP, rather than a substantial increase in revenue.
Achieving a fiscal deficit of 4.5 percent of GDP for FY26 is viewed as a crucial move towards reestablishing a more sustainable fiscal trajectory following the surge in government spending prompted by the pandemic.
The UBI report indicates that the current fiscal tightening is expected to be offset by targeted reforms designed to promote growth, which may include potential tax reductions, increased capital expenditures, and incentives tailored to specific sectors. The government's commitment to fiscal discipline has received mixed feedback, with some analysts advocating for more robust stimulus initiatives to bolster the slowing economy.
Nonetheless, the report implies that the government is likely to maintain its focus on fiscal responsibility, even as it seeks to incorporate growth-enhancing strategies in the forthcoming Union budget.
As the government gears up for the budget and the Reserve Bank of India's (RBI) monetary policy decisions in the near future, the UBI report highlights that the forthcoming actions will be crucial in shaping the path of India's economic recovery and its capacity to sustain fiscal health while fostering growth.
