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By Anant Chandak and Milounee Purohit
BENGALURU (Reuters) – India’s government will aim for deficit reduction in fiscal 2024-25 even though capital spending is reaching a record level, according to a Reuters poll of economists who said infrastructure investment would be a priority.
As it is an election year, in which the Bharatiya Janata Party (BJP), led by Prime Minister Narendra Modi, is expected to win a third term, the budget is expected to strike a balance between populist measures and fiscal prudence.
The government aims for the budget deficit to reach 4. 50% of GDP by the end of the 2025-26 fiscal year, from 5. 90% for the current year until the end of March 2024.
The Reuters poll of 41 economists conducted Jan. 10-19 showed that the Feb. 1 budget is expected to target the budget deficit as a percentage of GDP at 5. 30% in 2024-2025.
“To achieve the (2025-26) 4.5% deficit target, total expenditures would need to rise by no more than 7% per FY on average…meaning an even more aggressive cut to expenditures is likely in the coming years,” said Alexandra Hermann, lead economist at Oxford Economics.
Capital expenditure has already jumped from more than 33 percent this monetary year to more than 10 trillion rupees ($120 billion) and is expected to rise from 15 percent in the next monetary year to 11. 5 trillion rupees, with expectations of a steady percentage increase. investment.
Government investments have recently been the driving force behind the country’s economic expansion.
“The continued improvement of India’s infrastructure will be instrumental in driving the personal investment cycle,” Hermann said.
“But to leverage India’s huge potential and ensure sustainable and inclusive growth over the medium to longer term, human capital levels will need to improve, which is why spending on education should be the main priority.”
However, no economist responding to another survey cited education and fitness as the two most sensible budget priorities.
Almost all respondents said infrastructure investment (34) would be the most sensible priority, followed by rural progression (17) and project creation (16), with the latter failing to keep pace with tens of millions of people each joining the project market. yearly.
Social coverage programs are not expected to expand further given the deficit and gross borrowing of Rs 15. 6 billion is expected to remain largely unchanged from current year projections.
“There are situations that require expansion that we remain cautious about. Investment in non-infrastructure personal businesses is conspicuous by its relative absence,” said Kunal Kundu, an Indian economist at Societe Generale, pointing to modest domestic demand overall, although he noted that demand from the rich continue to grow. values.
“The tension is most visible in rural areas, as the informal sector continues to struggle, the MSMEs (micro, small and medium-sized enterprises), which are the biggest employment turbines. “
(Reporting via Anant Chandak and Milounee Purohit; poll via Veronica Khongwir, Devayani Sathyan and Pranoy Krishna; editing via Hari Kishan, Jonathan Cable, Kirsten Donovan)