Despite coalition rule, NDA govt firm on fiscal deficit

New Delhi: Fitch Ratings on Friday said India’s post-election budget confirms that the new administration remains committed to reducing the fiscal deficit for FY25 and FY26, despite demands of the coalition government. In the FY25 budget, the government has lowered the Centre’s fiscal deficit target for the year ending March 2025 to 4.9 per cent of GDP, from 5.1 per cent in February’s interim budget. The government’s fiscal deficit target for FY25 is significantly below the 5.4 per cent that the ratings agency anticipated when it affirmed India’s ‘BBB-’ rating, with a stable outlook, in January 2024.

“India’s post-election budget confirms that the new administration remains committed to reducing the fiscal deficit this and next year, despite the demands of the coalition government,” Fitch Ratings said in a statement. The sustained focus on supporting economic growth through high public capex also points to continuity in key areas, it added.

“We believe that it should be achievable as the government’s assumption of 10.5 per cent nominal GDP growth in FY25 is modestly below our current forecast. We think the government should also be able to achieve its goal of reducing the deficit below 4.5 per cent of GDP in FY26,” Fitch said. The government’s record in recent years of achieving or outperforming its budget deficit targets has improved its fiscal credibility - the deficit in FY24, at 5.6 per cent of GDP, was well below the original target of 5.9 per cent.