India’s Fiscal Policy: A Balancing Act for Growth and Stability

The Union Budget 2024–25 highlighted the government’s continued commitment to fiscal responsibility. While economic growth remains a key priority, there’s also a clear focus on controlling the fiscal deficit, improving efficiency, and ensuring long-term economic stability.

Let’s explore what that means, why it matters, and how the numbers stack up.

1. What Is Fiscal Policy and Why Does It Matter?

Fiscal policy refers to how the government manages its spending (expenditures) and income (mainly taxes) to influence the economy.

When done right, it can:

• Boost economic growth
• Create jobs
• Keep inflation in check
• Avoid excessive borrowing

But if the government spends more than it earns, it results in a fiscal deficit. This isn’t always bad—but too much deficit for too long can lead to higher debt, interest payments, and reduced ability to invest in key sectors like health, education, and infrastructure.

2. The Government’s Fiscal Deficit Target: 4.4% by FY 2025–26

The fiscal deficit is the gap between the government’s total spending and its total revenue (excluding borrowings), expressed as a percentage of the country’s GDP.

Key Fiscal Deficit Data:

• FY 2022–23: 6.4% of GDP
• FY 2023–24: 5.9% (Revised Estimate)
• FY 2024–25 (Budget Estimate): 5.1%
• Target for FY 2025–26: 4.4%

This gradual reduction shows the government’s plan to cut down on borrowing, manage inflation, and create more room for private sector investment.

Why Is This Important?

A lower fiscal deficit means:

• Less borrowing by the government
• Lower interest rates
• More money for businesses and consumers to borrow and spend

3. 2024–25 Budget: Spending vs. Revenue

Let’s break down what the government is earning and spending in 2024–25:

Revenue (Money In):

• Gross tax revenue: ₹38.31 lakh crore
• Non-tax revenue (like dividends, fees): ₹3.32 lakh crore
• Disinvestment receipts: ₹50,000 crore

Expenditure (Money Out):

• Total expenditure: ₹47.66 lakh crore
  • Capital expenditure: ₹11.11 lakh crore (up by 16.9%)
  • Interest payments: ₹10.9 lakh crore

Despite high spending, the government is trying to keep borrowing under control, which is why managing the fiscal deficit is so important.

4. Balanced Budget Strategy: Managing Both Sides

Rather than cutting spending sharply or increasing taxes heavily, the government is pursuing a balanced approach:

Key Strategies:

• Boosting tax revenue without increasing rates (through better compliance and digital systems)
• Prioritizing capital expenditure over subsidies—this means investing in railways, roads, and power instead of giving cash handouts
• Using disinvestment and public-private partnerships (PPP) to reduce pressure on public funds

Capital vs. Revenue Spending:

• Capital expenditure is for long-term assets (like highways, airports) → builds growth
• Revenue expenditure is for daily operations and subsidies → does not create new assets

India is smartly shifting more funds to capital spending, which generates jobs and economic activity.

5. Long-Term Benefits of Fiscal Discipline

While some critics say the government could spend more on welfare, the focus on fiscal discipline has major long-term benefits:

1. Lower Interest Rates

When the government borrows less, interest rates go down. This helps:

• Home loan borrowers
• Businesses that need working capital
• Startups looking for growth capital

2. Improved Investor Confidence

Rating agencies and global investors closely watch India’s fiscal position. A declining deficit shows stability, attracting more foreign direct investment (FDI).

3. Room for Emergency Spending

With a healthy balance sheet, the government can spend more when needed—like during the COVID-19 pandemic when stimulus was essential.

6. Global Comparison: How Does India Fare?

India’s deficit is better than many large economies, especially when compared to other developing nations. However, there’s still room for improvement to match European fiscal standards.

7. State-Level Comparison: Who Is Spending Wisely?

Some Indian states also perform better in managing their fiscal position:

States like Maharashtra and Gujarat maintain lower deficits, allowing them to invest more in development without heavy borrowing.

8. Final Thoughts: A Strong Fiscal Foundation for the Future

India’s focus on reducing the fiscal deficit shows a mature economic strategy. While there’s a need for higher spending on welfare and social services, spending wisely and within limits ensures long-term sustainability.

What This Means for You:

• Lower inflation in the long run
• Cheaper loans for housing, education, and business
• Better infrastructure and job creation from capital projects
• Stable economy with more investor confidence

 Fiscal Discipline = Economic Strength

In summary, India’s fiscal policy for 2024–25 is not about spending less—it’s about spending smarter. By keeping the deficit under control, investing in infrastructure, and improving tax collection, the government is building a strong foundation for future growth.

The road to a $5 trillion economy isn’t just about big announcements—it’s also about careful planning, responsible budgeting, and sticking to the numbers. And this year’s fiscal policy shows India is heading in the right direction.