Fiscal deficit aim of 5.3% attainable for next year, says former Chief Economic Adviser

Dr KV Subramanian, India's former Chief Economic Adviser (CEA) and CNBC-TV18's 2024 Budget Editor, exuded optimism in the country's ability to achieve a fiscal deficit target of 4.5% for the fiscal year 2025–26. Dr Subramanian highlighted the positive trajectory, indicating a potential fiscal deficit ranging between 5.2% and 5.3% for the upcoming fiscal year.

Speaking with CNBC-TV18 in an exclusive interview, the former CEA said, “I was looking at the tax buoyancy ratio over the last 10 years, and it has averaged between about 1.5 to 1.6. That is very good this year as well. I think the tax buoyancy ratio will be about 1.6. So, I expect, therefore, that

He lauded the government's diligence in achieving budgeted fiscal deficit numbers in previous years, dispelling any scepticism about the government's commitment to the glide path.

Speaking of the key numbers he would be most interested in looking at, Dr Subramanian listed three. Firstly, he projected a real growth rate of 7%. Secondly, he anticipated growth in government revenues exceeding 13%, underpinned by a tax buoyancy ratio of 1.6. Lastly, the IMF Executive Director pointed to the fiscal deficit as the third crucial indicator, expressing his expectation that it would fall within the range of 5.3% to 5.4%. This aligns with the overarching goal of achieving a fiscal deficit of 4.5% in the fiscal year 2025–26.

Dr Subramanian debunked any claims suggesting a deviation from the prescribed glide path, asserting that the government has consistently demonstrated diligence in meeting fiscal deficit targets. He drew attention to the successful realisation of the 5.9% budget estimate for the current fiscal year, further bolstering confidence in the government's fiscal management.