The center is likely to stick to its fiscal consolidation path and is looking at a possible tweak in its fiscal deficit target for the current financial year. According to sources, it could marginally lower its fiscal deficit target for the current financial year 2024-25 but it would be lowered only by a few percentage points and remain close to the 5% mark. According to sources, discussions have focussed on ensuring fiscal discipline even while allocations to some schemes and sectors may be increased.

Part of the confidence for ensuring fiscal discipline comes from the Rs 2.11 lakh crore dividend from the Reserve Bank of India, which is higher than the budgeted Rs 1.02 lakh crore (including dividends from banks and financial institutions) in the Interim Budget 2024-25. Tax collections for the first two months of the fiscal have also been buoyant and are likely to remain so with the economy expected to sustain its growth momentum this fiscal as well.

“There will be some balancing done in terms of raising sectoral allocations and possibly a few tax changes. These are still under discussion and are yet to be finalized. However, the government will ensure that the fiscal deficit target is either retained or lowered further,” said a person familiar with the development.

In FY24, the Centre had initially projected its fiscal deficit at 5.9% of the GDP and had then lowered it to 5.8% in the revised estimate. However, the fiscal deficit improved further and was at 5.6% based on the actual data on tax collections and expenditure in FY24. The interim Budget has pegged the fiscal deficit at 5.1% of the GDP in FY25. The Union Budget to be presented in July will provide clarity on the final deficit target for the current fiscal.

Analysts also believe that there is space to lower the fiscal deficit target for the current year. “Despite the challenging glide path of fiscal consolidation, the Union government over the past few years has reported a better fiscal deficit/GDP ratio than budgeted,” said India Ratings and Research in a note on Tuesday. In view of the expected revenue receipts and expenditure, it believes the FY25 full budget of the Union government will be able to bring down the fiscal deficit/GDP ratio further to 4.9% from the proposed 5.1% in the FY25 interim budget.

“Even the revenue deficit to GDP ratio in the full budget is expected to decline to 1.7% from 2.0% proposed in the interim budget,” it further said.

Motilal Oswal in a report also said that it does not expect the government to divert from its fiscal deficit consolidation path while improving the quality of fiscal spending. “It is, however, very likely that fiscal spending could be increased (versus February 24 budget), due to higher receipts led by the RBI dividend,” it said.

While a large part of the additional receipts from the RBI would be spent under various heads, a small portion could be used to reduce the fiscal deficit, it said. About Rs 30,000 crore to Rs 40,000 crore could be utilized to reduce the fiscal deficit to 5% of GDP, it said.