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New Delhi: American financial management company Morgan Stanley has that India’s fiscal deficit is expected to narrow to 5.9 per cent of GDP in FY2024 from 6.4 per cent in FY2023, Morgan Stanley said in a report.
“We expect fiscal consolidation on the back of lower subsidy payments, which will also ensure that focus on public CapEx spending is sustained, thus supporting the growth outlook,” the report said.
Expenditure ratio is expected to be moderately driven by lower subsidy spending. The report pointed out that the pandemic-related increase in revenue spending continued into FY2023 as the government saw higher outflows from the continued free food grain support programme, increased outlay in rural employment guarantee scheme, and increased spending on fertilizer subsidy. However, the mix of spending is expected to normalise in FY2024.
Subsidy spending is expected to moderate to 1.3 per cent of GDP in FY24 from 2 per cent of GDP in FY2023, driven by lower food and fertilizer subsidy. In particular, the food subsidy is expected to be moderated to 0.8 per cent of GDP from 1.1 per cent in FY23 as the government has discontinued the expanded free food grain distribution from 1 Jan 2023 even as it makes food grain under public distribution free, the report said.
In the case of fertiliser subsidy, as fertilizer prices have declined by 30-33 per cent YoY, we expect the fertiliser subsidy to moderate to 0.5 per cent of GDP in FY24 from 0.8 per cent in FY23.
Capital spending will likely rise by 16 per cent YoY keeping CapEx to GDP at 2.9 per cent of GDP in FY24, a tad higher than 2.8 per cent of GDP in FY23. As such the mix of spending will improve, with capital spending accounting for 19.8 per cent of total expenditure vs an average of 13.2 per cent in the previous five years. Within capital spending, we expect allocation to improve for infrastructure sectors (railways, roads) and also the focus to remain on infrastructure investments in rural areas, Morgan Stanley said.
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