World Bank Predicts Continued Decline in India's Fiscal Deficit Amidst Rising Tax Income

Synopsis

The World Bank anticipates a continued reduction in India's fiscal deficit due to increasing tax revenues, which is expected to enhance the government's fiscal consolidation policies. India's position as the fastest-growing major economy is also highlighted.

Key Takeaways

India's fiscal deficit is projected to shrink due to rising tax income.
The government aims to reduce the fiscal deficit to 4.9% of GDP this year.
Inflation in the region is expected to moderate.
India remains the fastest-growing major economy globally.
Robust investment growth is anticipated, supporting economic resilience.

New Delhi, Jan 19 (NationPress) The World Bank forecasts that India's fiscal deficit will further decline, supported by increasing tax revenues, as detailed in a recent report.

The report emphasizes that this development is likely to aid the government's fiscal consolidation efforts.

"In India, fiscal deficits are expected to continue shrinking, primarily due to rising tax revenues," the report stated.

While fiscal deficits across South Asia are anticipated to remain constrained, India distinguishes itself with its improving fiscal health. In contrast, other South Asian countries are projected to maintain stable fiscal deficits as fiscal adjustments are countered by elevated interest payments in Pakistan and infrastructure investments in Bangladesh.

The report also indicates that inflation in the region is expected to ease during the forecast period, aided by stabilizing exchange rates. Inflation is projected to remain within or below target ranges in nations like India, Nepal, and Sri Lanka.

Furthermore, India is expected to uphold its status as the fastest-growing economy among the largest global economies, with a GDP growth estimate of 6.7 percent for FY2025-26 and FY2026-27.

The report drew attention to the persistent growth in India's services sector and the revival of manufacturing, propelled by government initiatives aimed at improving logistics infrastructure and streamlining tax regulations.

Growth in private consumption is anticipated to rise due to a strengthening labor market, enhanced credit availability, and decreasing inflation, while government consumption growth may remain limited. Investment growth in India is projected to be vigorous, bolstered by increasing private investments, solid corporate balance sheets, and favorable financing conditions. These elements are expected to boost the country's economic robustness in the upcoming years.

The Indian government aims to reduce the fiscal deficit to 4.9 percent of gross domestic product (GDP) in the ongoing financial year, down from 5.6 percent in 2023-24.

India's net direct tax collections, which include corporate tax and personal income tax, surged by an impressive 15.4 percent to Rs 12.1 lakh crore from April 1 to November 10 during the current financial year, as per the latest data from the Central Board of Direct Taxes (CBDT).

Similarly, GST collections have also shown substantial growth, riding on the wave of increasing economic activity.

The increase in tax revenues provides the government with additional resources to invest in major infrastructure projects aimed at stimulating economic growth and implementing welfare programs for the underprivileged.

This also aids in managing the fiscal deficit and reinforces the macroeconomic fundamentals of the economy. A lower fiscal deficit implies that the government needs to borrow less, freeing more capital in the banking system for large enterprises to borrow and invest. This, in turn, can lead to a higher economic growth rate and the creation of more jobs.

Moreover, a lower fiscal deficit helps keep the inflation rate in check, thereby strengthening the economic fundamentals and ensuring growth alongside stability.