Government set to cut spending in FY24 despite election year and recession hit

Ahmedabad: Government of India is preparing to reduce the budget deficit by 0.50 percent during the next financial year. According to a Bloomberg report, such an effort by the government in an election year will affect the growth trajectory of the country's economy as more spending is usually required in this year before the election begins.

According to the report, Finance Minister Nirmala Sitharaman will try to keep the budget deficit below 6 percent of GDP in the financial year 2024. Nirmala Sitharaman will present the budget for the financial year 2024 on February 1. This will be the last complete budget of the Modi government before the upcoming Lok Sabha elections in 2024. Generally the Government of India spends more in such a year than in other years.

However, a challenge for the central government will also be that food and energy prices in the country have reached record highs due to the war in Ukraine. India's current account deficit is currently widening due to high crude and its products prices, along with fears of a global recession, the Indian rupee has hit new lows against the US dollar.

According to a recent report, the Indian government's subsidy expenditure on food, fertilizer and fuel could reach $67 billion in the current financial year, which would be 2.1 percent of GDP. While the Indian government estimated it to be only 39.2 billion dollars i.e. 3.2 lakh crore rupees in the budget.

So far, the RBI has already sold nearly $100 million worth of foreign currency from the forex reserve to stem the fall of the Indian rupee. However, given the strength of the dollar, it would be more prudent to preserve the dollar reserves by allowing a reasonable depreciation in the rupee, the report said.

Apart from this, India needs foreign investment to meet its budget deficit. India's inclusion in global bond indices will not change domestic policies much but policymakers want foreign investors to see India as an attractive investment destination and disciplining the fiscal deficit is now the government's priority.