Rating firm ICRA said on Thursday it expects the government to set a fiscal deficit target of 5.3% of GDP in the upcoming Union Budget for next year, covering half the distance to its commitment to achieve a deficit of 4.5% of GDP for 2025-26. 

While the deficit for this year is unlikely to overshoot the ₹17.9 lakh crore target, with the National Statistical Office estimating a lower nominal GDP growth of 8.9% compared with 10.5% estimated in the Budget, the fiscal deficit is expected to hit 6% of GDP for 2023-24, instead of the 5.9% target. 

Factoring in the 3% of Gross State Domestic Product (GSDP) borrowing limit for States set by the 15th Finance Commission for 2024-25, ICRA expects the General Government deficit to dip to 8.3% of GDP next year from 9.2% of GDP expected this year. “This would be the lowest level of the General Government deficit since 2019-2020, when it was 7.2% of GDP,” it said in a report on expectations from the Interim Budget to be presented on February 1. 

While ICRA believes the government will have fiscal room to raise its capex target by 10% over this year’s levels to around ₹10.2 lakh crore, it noted that a higher capex target would impinge on the Centre’s ability to bridge half the required fiscal consolidation next year and make meeting the 2025-26 target even more challenging.