In what could be music to the ears of economy-watchers and the investor community, the Centre is “well on track” to achieve the budgeted fiscal deficit target of 6.4 per cent of GDP for the current fiscal, the Economic Survey tabled on Tuesday showed.

Although a populist tone to the Union Budget cannot be ruled out, this expected adherence to target should be of some comfort, given the ₹1-lakh crore of additional spend that the Centre had taken up in December last year.

This is also a clear pointer that Budget 2023-24 could sustain the country’s fiscal consolidation efforts, which were disrupted in pandemic years, leaving less room for handouts before the general elections in 2024 and, thereby, provide a boost to investor sentiment in the year when India has assumed the coveted G20 Presidency. 

The subsidy Bill on food, fertilisers and fuel are an area of concern, with the aggregate cost expected at about $67 billion for the year ended March 2023, much higher than the Budget estimate of $39.2 billion. 

With the Budget being the last full edition one of the current dispensation ahead of the 2024 general election, there is widespread expectation that a fiscally responsible budget would be rolled out on Wednesday. 

The fact that as many as nine States will go in for Assembly elections this year will also add some pressure on Centre to adopt populist measures.

The Economic Survey for 2022-23 highlighted that the Budget 2022 last year was presented in a recovering yet uncertain macroeconomic environment, not anticipating the geopolitical developments that unfolded during the year. 

As the conflict in Europe broke out early in the year, it aggravated supply disruptions and had an adverse impact on the prices of fuel, food, and other essential commodities, the Survey added.

The government’s fiscal policy response necessitated additional spending on food and fertiliser subsidies, accompanied by specific duty cuts to control the pass-through of the high imported prices to the consumers/ users. “Despite additional fiscal resource pressures during the year, the Union Government is well on track to achieve the budget estimate for the fiscal deficit in FY23. The fiscal deficit of the Union Government at the end of November 2022 stood at 58.9 per cent of the BE, lower than the five-year moving average of 104.6 per cent of BE during the same period”, the Survey added.

The resilience in the fiscal performance of the Union Government has been facilitated by the recovery in economic activity, buoyancy in revenues from direct taxes and GST, and realistic assumptions in the Budget, the Survey added.

Although the latest Economic Survey sees fiscal deficit target being met, there are some economists who see the fiscal deficit for current fiscal seeing a slippage by about 200 basis points (6.6% of GDP).

The Centre has budgeted a fiscal deficit of 6.4% of GDP in the current fiscal, significantly down from 9.2% during the first year of the pandemic. The Centre had also under Fiscal Responsibility and Budget Management framework set for itself a long standing plan to shrink the deficit to 4.5 percent by 2025-26.