Indian Finance Minister is facing a difficult choice – increase growth or reduction of deficit

While the Indian government walks with a tight rope between fiscal prudence and growth revival, experts suggest that this is likely to favor a reduction in deficit in the annual budget due to consumption aimed at turbo charging the third largest Asian economy.

For the fiscal year that ended March 2026, the Indian government could reduce the goal of a fiscal deficit by 50 base points to 4.4% of the gross domestic product in the country with a target of 4.9% for a current fiscal year, Economists said in UBS – in the investment bank.

They also predicted that the Government would set a nominal goal of GDP growth of 10.5% for the next fiscal year.

The Nermal Sitharaman Finance Minister will present the state budget on February 1, in what would be the first year -round budget of the coalition government after assumed Power in June.

The budget comes against the background of growth of growth in the fifth largest economy in the world, weak domestic demand, deprecating ropes and growing global insecurity.

The slowdown of the economy is mainly attributed to factors such as Nestan rains, fiscal tightening and direct growth of loans in the private sector because the central bank has taken steps to combat uncertain borrowing growth.

The upcoming budget is likely to emphasize the growth of jobs in the working intensive manufacturing sector, simultaneously promoting rural residential programs and additional steps to control the price of prices, said Goldman Sachs.

In the background of a slower domestic consumption and activity, the budget could focus on “fine adjustment of existing measures and a medium-term increase in demand,” said Radhika Rao, a senior economist in DBS.

“Tax relief [also] At the top of this list … Although the reduction of income tax or standard exemption will affect the small part of the population, some support is probably ongoing, “Rao added.

In order for the consumption to encourage, it is expected that the Central Government will reduce the income tax for medium income income, she said, while continuing the priority of infrastructure consumption, the upgrade of roads, railways, airports and highways in the country.

After an increase at 9.2% of GDP during pandemicThe Indian government has constantly reduced its budget deficit in recent years, which is a key request for the country to win the upgrade of credit rating.

S & P global rating Raised in May Indian prospects for evaluating sovereign to a “positive” from “stable”, retaining the credit rating of the country on “BBB-“– his lowest level of investment class – citing a strong economic expansion of the country, political commitment to fiscal consolidation.

The Finance Minister advocated Her speech in July a budget for Suga deficit up to 4.9% in the current fiscal year and 4.5% of the next fiscal year. “From 2026-27 onwards, our efforts will be to keep a fiscal deficit every year, so that the Central State’s debt will be on the decreasing path as a percentage of GDP,” she said.

The Government is expected to achieve a deficit of less than 5% in the current fiscal year, in part Thanks to a record dividend of $ 25 billion from the central bank. Nomur economists partly attributed it to a “sharp background” in capital expenditures.

Over the last seven years, the Indian government has been consistently lagging behind the complete use of budget and additional expenditures approved by additional scholarships, using an average of about 80% of the total available funds each year, according to the Goldman Sachs budget. The deficiency narrowed the post-paragraph, when the government overpowered its budget subsidies to cover the growing prices of food, it is said.

The Investment Bank has projected government public expenditures to reduce it in the coming years, slowing down to 3.2% of GDP in the fiscal year 2025-26.

This fiscal discipline “remains a growth of growth in the next fiscal year,” he said, suggesting that “the fastest growth pace of growth in public Capex is behind us … Overall, there is not much room for increasing the consumption of well -being.”

World The fastest growing big economy recorded a growth decline. India constantly reduces its entire year’s actual prognosis of GDP after economic growth Missed expectations In a quarter that ended September, when it increased by 5.4% – the slowest spread in almost two years.

The Government has reduced its economic growth to the currently fiscal year to the rarest level in four years after three red -reduction rounds brought estimates 6.4% earlier This month of 7.2% in October.

In the next fiscal year, Nomur analysts said that the Government could set a nominal goal of GDP growth of 10.3%, which is 9.7% for the current fiscal year that ended March 2025.

However, the hope that Sitharaman will deliver a large fiscal package to pull the economy from his recent soft patch in the upcoming budget, will probably be disappointed, said Shilan Shah, Deputy Chief Economist on the emerging market in the capital economy.

Although some additional “measures to accommodate taxes and consumption on cards are,” it will probably be “pieces,” Shah added.

The Indian Consumer Price Inflation has fallen within the upper limit of the central bank of 6%, entry with 5.22% in December and 5.48% in November – In October he broke the upper limit – By offering RBI some spaces for lower prices.

RBI faces a “difficult choice,” said Tavee Gupta Jain, the main Indian economist on UBS, adding that she expects the “shallow cycle of monetary mitigation” of about 75 base points, starting with a meeting in February.

The central bank, however, said last month that monetary conditions could stay firmly for a while while watching further suppression of inflation pressures.

Indian observers were also on Tentterhooks over possible actions President Donald Trump, who floated with the idea of ​​universal tariffs during the campaign path.

With trade Surplus of nearly $ 42 billion with USA., India faces an enhanced control under Trump’s focusing policy on a reduction in a trade deficit.

The framework of US trade policy under Trump’s other Presidency could strengthen the yield for the dollar and treasury, maintaining US interest rates longer. He has it complicated the decisions about the Central Bank policy in Asia, The involvement of RBI, as an increase in growth of policy loose, would mean expanding the difference in speed.

India is looking for cUt its disinvestment and objectives of bringing assets For 40% – or less than 300 billion Rupees ($ 3,47 billion) from 500 billion rupees – for a current financial year, the domestic media reported on economic times earlier this month.

The revenues of omissions “lagged behind this year” and amounted to 90 billion rupees compared to an estimate of the state budget of 500 billion rupees, UBS Jain said.

He expects the Government to reduce the goal “to 300 billion” Rupees for the next fiscal year.