The street expects Finance Minister Nirmala Sitharaman to walk the path of fiscal prudence as she readies to deliver her eighth consecutive Union Budget on February 1
Union Finance Minister Nirmala Sitharaman.
Image: Ajay Aggarwal/Hindustan Times via Getty Images
The street expects the upcoming Union Budget to signal policy continuity for fiscal prudence even as it aims to revive the animal spirits of the economy. Economists and analysts believe the budget announcements will be centred around the fiscal consolidation path outlined by the government but are likely to continue with the subsidies announced earlier with a continued focus on increasing the outlay for capital expenditure.
“Fiscal consolidation in the last three years has come through without sacrificing growth objectives. However, the economic momentum loss and nominal GDP growth going down to single digits for an extended period can create a much bigger trade-off between growth and fiscal consolidation, going forward,” notes a BoFA Global Research report dated January 16.
In the previous budget announced in July, on way to achieving its FY26 fiscal deficit goal of 4.5 percent of the GDP, the government did announce sops for women, farmers, and the youth to spur an inclusive and investment-led growth cycle. But what shone through was the solid path to fiscal consolidation: FM Sitharaman lowered the FY25 fiscal deficit estimate to 4.9 percent from 5.1 percent projected in the Interim Budget in February. It aims to bring down the fiscal gap to 4.5 percent in FY26.
UBS India believes the fiscal deficit target could marginally improve to 4.8 percent versus the budget estimate of 4.9 percent in FY25 on account of slower than budgeted capex. On the revenue side, its economists expect gross tax revenue collection to grow at 11.5-12 percent in FY26 in comparison to 10.7 percent so far in the current fiscal.
“Overall, we expect government capital spending to pick up next year which coupled with shallow monetary easing should help support real GDP growth of 6.3 percent in FY26,” UBS India’s economists said.