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Leash on fiscal deficit to stay, RBI's Rs 2.11-lakh crore bounty a boon for Nirmala Sitharaman

The government has no plans to increase its fiscal deficit target despite speculation that more spending might be needed to appease coalition partners

Our Special Correspondent New Delhi Published 12.06.24, 10:07 AM
Nirmala Sitharaman

Nirmala Sitharaman File picture

Finance minister Nirmala Sitharaman has much to thank the RBI for its dividend largesse just before the end of polls as she prepares to take charge one more time, with the Modi 3:0 government walking a tightrope between fiscal consolidation and demands of the coalition partners to give them a greater slice of the resource pie.

The 2.11-lakh-crore bounty from the RBI gives Sitharaman enough elbow room to put the lid on fiscal deficit while being generous towards the demand for populist schemes, analysts said.


The full budget of the coalition government expected next month will
give a strong signal on the direction of economic policy.

The government has no plans to increase its fiscal deficit target despite speculation that more spending might be needed to appease coalition partners, Reuters said quoting a government official.

Rating agencies and analysts have said the government may step up welfare spending as well as support for states represented by partners in the National Democratic Alliance.

Fiscal consolidation has been a top priority for Sitharaman as the country’s credit rating will largely depend on how she manages her revenues and expenditure maths.

She succeeded in bringing down the fiscal deficit to 5.6 per cent of GDP in 2023-24 . “There will be no fiscal loosening at least in 2024-25,” Reuters said quoting unnamed officials said.

“In the upcoming budget, we expect the central government to remain on the fiscal consolidation path, targeting fiscal deficit at 5.1 per cent of GDP in 2024-25 and bringing it further down to below 4.5 percent of GDP by FY26,” Tanvee Gupta Jain, chief India economist, UBS, said.

“We believe the higher-than-expected RBI dividend transfer to the government (additional 0.3 per cent of GDP in FY25) would create fiscal leeway to increase populist spending to support consumption for lower income strata while continuing its thrust to boost public capex.”

The World Bank, meanwhile, on Tuesday forecast a 6.7 per cent growth in average for three fiscal years from 2024-25.

Stern test for Scindia

New telecom minister Jyotiraditya Scindia took up the hot seat with the spectrum auction just a fortnight away on June 25.

His task is cut out as the base price for the airwaves has been set at 96,317 crore but with only three bidders in fray, analysts expect the sale to be a muted affair projecting revenues of 18,000 crore.

Meanwhile, Vodafone Idea — the government holds 33 per cent in the beleaguered telco — has received an in-principle approval from a consortium of lenders led by SBI for a 14,000 crore loan. Shares of the company jumped 2.47 per cent on the BSE.

BPCL sale off

Petroleum minister Hardeep Singh Puri said the government has shelved plans to sell its stake in state-owned Bharat Petroleum Corporation Ltd (BPCL), citing the company’s strong financial performance.

“There is no need to sell profit-making PSUs like BPCL,” Puri said as he took charge of the ministry, adding the company’s profit in the first three quarters of 2023-24 exceeded the estimated sale value of the government’s stake.

With inputs from Reuters

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