Synopsis
On February 1, the Central government revealed a consumption stimulus and maintained its capex focus while adhering to fiscal consolidation, according to an HSBC report. The government aims for a fiscal deficit reduction, maintaining macro stability while balancing various economic objectives.Key Takeaways
- The government announced a consumption stimulus through personal income tax cuts.
- Capital expenditure is set to increase significantly.
- Fiscal deficit targets are being maintained for macroeconomic stability.
- Non-tax revenues from the RBI are projected to rise.
- Prudent management of schemes is essential for meeting expenditure goals.
New Delhi, Feb 1 (NationPress) The Central government unveiled a consumption stimulus through reductions in personal income tax rates, maintained its focus on capital expenditure (capex), and continued its journey towards fiscal consolidation, as stated in an HSBC report.
The government managed to balance multiple conflicting objectives in the budget. It provided a nearly equivalent stimulus for both consumption (with personal income tax reductions totaling Rs 1 lakh crore) and capex (increasing budget allocations by Rs 1 lakh crore) while committing to a reduction in the fiscal deficit (as promised, to 4.4 percent of GDP for FY26).
According to HSBC Global Research, "With careful pruning of schemes, we believe that expenditure targets can be achieved. Given the maintained fiscal discipline and a decrease in inflation, we anticipate the central bank will promote growth through rate cuts and liquidity infusion."
The government set a fiscal deficit of 4.8 percent of GDP for FY25, which is an improvement from the initial estimate of 4.9 percent of GDP. A target fiscal deficit of 4.4 percent of GDP has been established for FY26, highlighting a 0.4 percent of GDP fiscal consolidation.
"Despite the pressures to bolster growth, the government adhered to its commitment to reduce the fiscal deficit below 4.5 percent of GDP in FY26. This is, in our view, a significant positive for macro stability," the report highlighted.
The government aims to maintain the fiscal deficit annually in such a way that the Central Government debt continues to decrease as a percentage of GDP.
The outlook for non-tax revenues appears reasonable, with dividends from the RBI and other financial institutions projected at Rs 2.6 lakh crore (compared to Rs 2.3 lakh crore in FY25).
Capex is anticipated to rise in accordance with nominal GDP growth, reaching Rs 11.2 lakh crore in FY26 (up from Rs 10.2 lakh crore in FY25), indicating that the government plans to sustain the capex momentum it has carefully cultivated.
"Overall, we believe that with meticulous adjustments, expenditure targets can indeed be met," the report concluded.
In line with fiscal consolidation efforts, the government announced a net market borrowing of Rs 11.5 lakh crore in FY26, which is a reduction from Rs 11.6 lakh crore in FY25, as noted in the report.
