A balancing Act

Context:

The Centre's fiscal deficit has seen a significant increase, reaching Rs15 lakh crore by the end of February, indicating a notable deviation from the earlier trajectory and posing challenges for fiscal management.

Factors contributing to deficit surge:

Two key factors have contributed to the surge in the fiscal deficit for February.

• Firstly, higher transfers to States, amounting to around Rs2.15 lakh crore, compared to ?1.4 lakh crore last year, have widened the deficit.
• Secondly, capital expenditure witnessed a substantial increase from ?47,600 crore in January to Rs84,400 crore in February, driven by efforts to boost infrastructure development and stimulate economic growth.

Challenges and targets for fiscal consolidation:

• The government aims to narrow the fiscal deficit to 4.5% of GDP by 2025-26, with a target of 5.1% for 2024-25.
• However, achieving this requires recalibration of the fiscal path, considering factors such as economic conditions, government priorities, and expenditure patterns.
• Despite room for spending available in critical sectors like Agriculture, Rural Development, and Consumer Affairs, persistent deviations from spending targets raise concerns about the effectiveness of fiscal planning and the need for better expenditure management.