India has set a target to narrow its fiscal deficit to 5.1% in the fiscal year 2024/25, after lowering the current year's deficit to 5.8% of gross domestic product (GDP), Finance Minister Nirmala Sitharaman said on Thursday.
The government will continue the path of fiscal consolidation, Sitharaman said while presenting the interim budget for the fiscal year starting on April 1.
The plan to shrink the fiscal deficit to 5.1% of GDP while raising capital spending and implementing new welfare policies will lean on higher tax collections and some subsidy cuts.
The government will target to gross borrow 14.13 trillion rupees ($170.35 billion) via bonds in the next financial year, which is sharply lower than estimates.
Bond yields plunged after the announcement of fiscal deficit and borrowing targets, both of which were lower than market estimates.
The Indian 10-year benchmark bond yield dropped to 7.0511%, its lowest level since July 19, after the announcement.
The target is indicative of the government's intent to remain fiscally prudent despite populist pressures ahead of national elections in a few months, although most independent polls predict Prime Minister Narendra Modi will win a rare third consecutive term.
The cut in the fiscal deficit will come as a relief to foreign investors and rating agencies that have raised doubts about India achieving its goal to narrow its deficit to below 4.5% of GDP in the next two years.
The government is also mindful of its fiscal deficit targets since a new set of investors will be carefully assessing the government's debt levels once the country's sovereign bonds are included in the JPMorgan (JPM.N) and Bloomberg emerging market indexes.
($1 = 82.9465 Indian rupees)
