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Indian Government to Prioritize Fiscal Discipline in Upcoming Budget

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The upcoming Indian budget, scheduled for presentation on Feb. 1, is expected to focus on fiscal discipline while addressing economic growth and consumer demand amid various challenges.

Nirmala Sitharaman, India's finance minister, leaves the ministry to present the budget at the parliament in New Delhi, India, on July 23, 2024.

As the Indian government walks a tight rope between fiscal prudence and reviving growth, experts suggest it will likely favor cutting the deficit in its annual budget over spending aimed at turbocharging Asia's third-largest economy.

For the fiscal year ending March 2026, the Indian government could lower the fiscal deficit target by 50 basis points to 4.4% of the country's gross domestic product from the 4.9% target for the current fiscal year, economists at investment bank UBS said.

They also projected the government would set a nominal GDP growth target of 10.5% for the next fiscal year.

Indian Finance Minister Nirmala Sitharaman will present the national budget on Feb. 1, in what would be the coalition government's first full-year budget after assuming power in June.

The budget comes against the backdrop of a growth slowdown in the world's fifth-largest economy, weak domestic demand, a depreciating rupee and rising global uncertainties.

The slowdown in the economy has largely been attributed to factors such as unseasonal rainfall, fiscal tightening, and tepid credit growth in the private sector as the central bank took steps to curb unsecured lending growth.

The upcoming budget is likely to re-emphasize jobs growth in the labor-intensive manufacturing sector, while promoting rural housing programs and additional steps to control price volatility, Goldman Sachs said.

Against the backdrop of slower domestic consumption and activity, the budget might focus on "fine-tuning existing measures and medium-term demand boost," said Radhika Rao, senior economist at DBS.

"Tax relief [also] tops this list ... even though a reduction in the personal income tax rates or standard exemption will impact a small part of the population, some support is likely in the pipeline," Rao added.

To give consumption a boost, the central government is expected to lower personal income tax for middle-income households, she said, while continuing to prioritize spending on infrastructures, upgrading the country's roads, railways, airports, and highways.

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