The economists were of the opinion that slowing economic growth would limit the government from spending more.
Fiscal consolidation in not a new move from the BJP government, with Modi’s Cabinet choosing to stick to a path of fiscal consolidation since coming to power in 2014.
But the COVID-19 pandemic has severely affected government finances, pushing the fiscal deficit for 2020-21 to a record 9.3% of gross domestic product (GDP), significantly higher than the budgeted 3.5%.
A fiscal deficit of 6.9% for 2021-22 and an expected 6.4% for 2022-23 were expected to be followed by a further fall in the next fiscal year.
The median forecast from 37 economists polled from Dec. 13 to Dec. 21 was for the government to limit borrowing to 6.0% of GDP in 2023-24 – well above the historic average of 4%-5%. Predictions ranged from 5.7% to 6.8%.
“We have global economic slowdown concerns and that will have ripple effects on the Indian economy. So the scope for progressive spending … as a factor to drive growth is limited,” Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, told Reuters.
Bharadwaj said the focus would be on capital expenditure, with a lot riding on tax collections, adding that despite a robust current year, “they will not sustain into next year”.
More than 80% of the economists, 29 out of 35, who answered an additional question said fiscal consolidation was likely to be the dominant theme in the budget Finance Minister Nirmala Sitharaman is expected to announce on Feb. 1.
Sitharaman has made it clear that despite external shocks and global uncertainties the government intends to meet the fiscal deficit target of 4.5% of GDP by the end of the 2025/26 year. Efforts to maintain fiscal discipline reflect concern over India’s sovereign credit rating, currently at BBB-, just a notch above junk status.
That will likely limit the government’s ability to provide relief to households and businesses facing an uneven recovery from the pandemic.
Economic growth likely slowed sharply to an annual 4.6% in the December quarter from 6.3% reported in the preceding quarter. It was expected to slow to 4.4% in the next quarter, the Reuters poll found.
Sitharaman’s expected fiscal prudence coincides with state assembly elections in Karnataka, Chhattisgarh, Madhya Pradesh and Rajasthan in 2023, which would likely discourage the government from making deep cuts to social welfare.
With inputs from Reuters