Budget 2024: Finance Minister Nirmala Sitharaman's historic Budget, presented in Parliament on Tuesday, July 23, pegged the country's fiscal deficit at 4.9 per cent of GDP for the current financial year, 20 basis points below 5.1 per cent pegged in the Interim Budget presented on February 1 this year. 

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"The fiscal consolidation path announced by me in 2021 has served our economy very well, and we aim to reach a deficit below 4.5 per cent next year. The Government is committed to staying the course," said the finance minister in Parliament. Read full text of Finance Minister's 7th Budget speech

For the next financial year, which begins on April 1, 2025, the central government set a goal of containing the deficit at 4.5 per cent of GDP. Containing the deficit is crucial for maintaining fiscal discipline while promoting sustainable economic growth and ensuring macroeconomic stability.

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"As expected, Centre has not let go of the consolidation journey ahead (as the debt management remains tricky), despite the challenges of the political economy... The policy direction/prerogatives may remain largely similar, focusing on a credible and clearly communicated consolidation, anchored on stronger revenue mobilization and spending efficiency," said Madhavi Arora, Lead Economist at Emkay Global Financial Services. 

The Interim Budget target of 5.1 per cent was already 80 bps below the actual reading of the previous fiscal year, and much lower than a simple average of 7.5 per cent recorded in the past three years. 

"The end-March '24 cash balance is estimated to have been the high of Rs 1.75 trillion, vs sub Rs 300 billion budgeted. However, the final borrowing is largely in line in the interim, implying Net Treasury bill issuances may have been massively cut," Arora added. 

Fiscal deficit indicates how much the government needs to borrow to meet its expenses if its spending exceeds its revenue.

A high fiscal deficit can lead to economic instability because it often means the government is borrowing heavily. On the other hand, a low fiscal deficit can contribute to economic stability because it indicates that the government is managing its finances well without excessive borrowing. 

Fiscal consolidation refers to measure undertaken by a government to mitigate its fiscal deficit.