Centre to decide on fiscal consolidation strategy later, focus remains on meeting deficit targets

The Centre will decide on its fiscal consolidation strategy at a later date, official sources said, adding that the current focus remains on meeting the fiscal deficit targets announced in the Union Budget.

Finance Minister Nirmala Sitharaman set the fiscal deficit target at 4.9% of GDP for FY25 and said it would be reduced to less than 4.5% in FY26.

As part of the Union Budget 2024-25, she also announced that from 2026-27 onwards, the government's goal will be to maintain the fiscal deficit at a level that ensures the Central Government debt is on a declining path as a percentage of GDP.

Sources indicated that a decision on whether to maintain a fixed deficit target for each fiscal year or focus solely on the debt-to-GDP ratio will be made at a later date. "These issues are not being addressed now but will be considered later," they said, adding that there is no intention to amend the FRBM Act.

Analysts and experts have welcomed the Centre's stance on fiscal consolidation and believe it will be achievable given the bumper dividend from the RBI.

Meanwhile, sources also said that the planned review of the Income Tax Act and customs duties rates would take about six months. They indicated that it is currently difficult to set a timeline for the review and whether it would feature in the next Union Budget 2025-26.

Work on rolling out the five schemes aimed at employment generation and skilling, announced in the Union Budget, will also begin shortly. For now, the Budget and the Finance Act need to be passed, after which these initiatives will be initiated.