Growth engine runs out of steam

THAT REPRESENTS A loss of 6.4% growth over the period, against an average annual growth of 6%.

The NSO has estimated nominal GDP expansion for the current year at 9.7%, against 10.5% projected in the Union Budget 2024-25. This means fiscal deficit would be marginally higher than the estimated level of 4.94% of the GDP, if other Budget numbers hold, or require an expenditure reduction of ₹13,000 crore given the budgeted level of receipts.

However, the revised estimates of deficits to be unveiled in the Budget 2025-26 on February 1 could still be at or less than the BE levels. According to official sources, the Centre's capital expenditure will likely fall short of the FY25 target of ₹11.11 lakh crore by ₹60,000 crore to ₹1 lakh crore.

With a capex shortfall of ₹60,000 crore against Budget, fiscal deficit would fiscal come in at 4.8%, going by the advance estimate of nominal GDP. That signals a rather tight Budget, as the year-on-year growth of Budget size is anyway projected to be 8.5% over year, even below the nominal GDP growth rate.

As per the medium-term fiscal consolidation road map, the fiscal deficit requires to be below 4.5% in 2025-26. It is widely expected that the Centre would stick to this plan in the coming Budget. The pace of increase in capital expenditure may slow a bit, while some tax giveaways aimed at boosting consumption is expected in the Budget.