Beyond Budget: What Happened When Nobody Was Really Looking

This year marked the return of state capex alongside central; the next year could mark a pivot from fiscal to monetary easing

It's that time of the year. All eyes are on the budget this Thursday, closely followed by the Reserve Bank of India (RBI) policy meeting a week later. What's at stake? What could change? And what will this mean for RBI?

While the upcoming budget is an interim one, and the government will release the final budget after the May national elections, it's still important as the final budget is likely to follow along similar lines. The interim budget will also set the stage for state budgets that take cues from the central government to varying degrees. The interim budget will also signal how serious the central government is about fiscal consolidation.

Recall that it plans to lower the fiscal deficit from 5.9% of gross domestic product (GDP) in fiscal year 2023-24 to 4.5% of GDP by 2025-26.

A lot has happened on the fiscal front in the past year, with some efforts better known than others.

But together, they will likely set the boundaries for the upcoming budget. We discuss some of these below.

Soaring tax receipts saved central targets: Tax revenues have soared so much that they're now 0.3% of GDP higher than budgeted. This buoyancy will likely fund a rise in subsidies and any special spending packages announced on budget day.

Capital expenditure is expected to show a rise in 2023-24, but not by as much as budgeted (22% year-on-year versus 36%). All considered, the fiscal deficit is likely to be in line with the budgeted 5.9% of GDP in 2023-24.