The Indian government is considering the possibility of announcing additional "expenditure initiatives" in the lead-up to the national elections in the first half of 2024.
However, a recent report from S&P suggests that these initiatives are unlikely to have a significant impact on the country's fiscal deficit target.
This indicates a careful balancing act between addressing political priorities and maintaining fiscal responsibility as the elections approach.
“More expenditure initiatives are possible as we move through this election cycle. In the very near term, these could be supportive of consumption, but they are unlikely to have a major impact on medium-term finances," said Andrew Wood, S&P's director for sovereign ratings.
"Revenue growth remains supportive and we expect that will continue. The targets the centre has set are very gradual in terms of pace of consolidation and there is some pace to manoeuvre within the glide path, as long as the economy stays pretty strong," he added.
Prime Minister Narendra Modi recently made the significant announcement of extending the free foodgrain scheme, originally initiated during the COVID-19 pandemic, for an additional five years. This move highlights the government's commitment to providing essential food support to vulnerable populations.
In parallel, the government has set a fiscal deficit reduction target, aiming to bring it down from 5.9 percent of the GDP in 2023-24 to 4.5 percent in the fiscal year 2026. This reflects a long-term strategy to manage the fiscal deficit while continuing essential social support programs.
For the current financial year, the government has already allocated a budget of Rs 1.7 lakh crore for expenditure on free foodgrains, demonstrating its dedication to addressing food security concerns in the country. This underscores the government's dual approach of managing fiscal responsibility while safeguarding the welfare of its citizens.
(With Agency Inputs)