With the Union Budget 2025 just two days away, all eyes are on FM Nirmala Sitharaman who faces a huge task to balance measures to ensure fiscal consolidation and economic growth. According to estimates, fiscal deficit is at 5.6% in FY 2023-24, with a target of 4.94% for FY 2024-25. The government is targeting further reduction of fiscal deficit lower than 4.5% by 2026-2027. For this, the government will have to follow a path of fiscal consolidation.
Business Today spoke to market analysts on the fiscal deficit target that may cheer the stock market during Budget 2025. Here's what they said.
Ravi Singh, Senior Vice-President (Retail Research) at Religare Broking
The magical fiscal deficit target that might cheer the stock market is expected to be around 4.5% of GDP, as this reflects a commitment to fiscal consolidation while allowing for necessary capital expenditure. However, how this target is perceived will depend on its alignment with broader economic goals and investor expectations regarding growth and stability.
Amnish Aggarwal, Director - Institutional Research, PL Capital - Prabhudas Lilladher
Revenue collections in FY25 have been constrained by subdued GST performance, lower urban demand, and flat corporate tax collections, despite robust income tax growth of 23.5% during 8mFY25. This growth is driven by capital gains from investments and property; however, volatility in capital markets poses a risk to income tax collections in 2H25. Historical trends suggest revenue spending may exceed targets, while weaker nominal GDP growth and reduced capex execution should enable the fiscal deficit with the targeted 4.9% of GDP for FY25.
Ajay Garg, CEO, SMC Global Securities
A fiscal deficit target between 4.5% to 4.9 % of GDP for FY2025 could strike a balance between fiscal consolidation and maintaining economic growth.
Manish Chowdhury, Head of Research, StoxBox
With the government expected to meet its FY25 fiscal deficit target of 4.9% owing to some slowdown on the expenditure side, we anticipate the government to continue with its policy of fiscal prudence along with unveiling measures to stimulate economic growth. We expect the government to set a fiscal deficit target of 4.5% for FY26, which could cheer market participants.
Trivesh D, COO Tradejini
The fiscal deficit target is likely to be kept below 4.5% for the next fiscal year, which would reflect a controlled approach and a growing economy. It seems the government will aim to balance quality spending, particularly in capital expenditure, while avoiding sharp increases in deficits. In February 2023, the fiscal deficit target was set at 6.4% of GDP for 2023-24, and by July 2024, it was revised to 5.9% for 2024-25
Puneet Singhania, Director at Master Trust Group
It is anticipated that the fiscal deficit target for FY26 will be set at 4.5% of GDP, which would represent a 25-30 basis point decrease from the FY25 objective of 4.8% of GDP. This is likely to infuse confidence into the stock market. In accordance with the medium-term plan, the government will support a steady pace of fiscal consolidation, with a fiscal deficit target of 4.5% of GDP. This suggests a slightly slower rate of fiscal reduction, allowing the government to concentrate on capital expenditures and specific investment in the social sector. Markets usually prefer budgets that are careful with spending but still focus on areas like infrastructure, social programs and new technologies, which help grow the economy. This balance between financial discipline and economic progress is key to keeping markets optimistic.
Siddharth Oberoi, Founder and Chief Investment Officer at Prudent Equity
The fiscal deficit target set by the government in the last budget was ambitious. However, instead of prioritizing a sharp reduction in this figure, the focus should be on maintaining a balanced approach. Emphasis should be placed on addressing key areas of concern, such as revitalizing private sector investment, which has been notably lacking in recent times.
Manish Bhandari, CEO and Portfolio Manager at Vallum Capital Advisors
India's fiscal deficit target for the financial year 2024-25 is pegged at 4.9% of GDP, translating to approximately Rs 16.1 trillion. This marks a significant reduction from the 5.6% of GDP recorded in the previous fiscal year. The government has committed to reducing the fiscal deficit further to below 4.5% of GDP by the financial year 2025-26, as outlined in the Union Budget. We strongly believe India was a very prudent allocator of resources during the time of COVID-19, hence meeting this target is quite likely. However, the women-centric welfare schemes which started in Madhya Pradesh, Karnataka, and Maharashtra are spreading across the country. This may create pressure on the consolidated fiscal deficit.
Anand K Rathi, co-founder of MIRA Money
India aims to reduce its fiscal deficit, following what is known as the fiscal deficit glide path. This means the country is gradually and steadily working to lower its budgetary deficit. Currently, it is expected to be around 4.5% of GDP, with a goal of decreasing it over time to 3%. I believe that last year's fiscal deficit target will be easily achieved this time, providing the government with a bit more room for spending. However, they will also consider factors such as tax buoyancy. The market expects a fiscal deficit of 4.5%, and if the government manages to reduce it slightly below that, it could be perceived negatively, as it may indicate cuts in expenses. Therefore, maintaining the deficit around 4.5% is likely to keep the market optimistic. This potential negative perception of a reduced deficit should alert investors to potential market reactions, keeping them informed about the market dynamics.