Budget may bring down fiscal deficit to 4.9 per cent

Chennai: The Centre will be able to bring fiscal deficit further down to 4.9 per cent in FY25 full budget from 5.1 per cent proposed in the interim budget and the market borrowings are expected to decline, finds Ind-Ra.

In view of the expected revenue receipts and expenditure, India Ratings believes the FY25 full budget of the union government will be able to bring down the fiscal deficit/GDP ratio further to 4.9 per cent from the proposed 5.1 per cent in the FY25 interim budget. Even the revenue deficit to GDP ratio in the full budget is expected to decline to 1.7 per cent from 2 per cent proposed in the interim budget.

As a result, the Centre’s gross market borrowings are expected to decline to Rs 13.58 trillion in the FY25 full budget from Rs 14.13 trillion in the interim budget. Similarly, net market borrowings are expected to come down to Rs 11.20 trillion Rs 11.75 trillion. As the fiscal deficit and the borrowing numbers appear achievable, Ind-Ra expects the FY25 full budget to have a favourable impact on the interest rate.

“In view of the lower market borrowings and India’s inclusion in JP Morgan's Government Bond Index-Emerging Markets, the 10-year G-sec yields are expected to decline to 6.8 per cent mark at end-FY25. This will not only help the government to borrow at lower costs, but also lower the capital market borrowing cost for corporates, banks and other financial institutions,” said Sunil Kumar Sinha, Senior Director and Principal Economist, India Ratings.

The 10-yr G-sec yield started softening post the presentation of the interim budget, which proposed a lower borrowing in FY25 than in FY24. Although it rose briefly in April 2024, it started falling May 2024 onwards. The 10-year G-sec yield is a little lower than 7 per cent. The 10-year G-sec yields may decline further if the RBI cuts the policy rate. However, this would depend on food inflation and the progress of the monsoon.