The Budget has stuck to the task of following the path of fiscal prudence and indicated 5.1% as the deficit target for FY25. Given that the government was able to maintain the deficit ratio at 5.8% instead of 5.9% for FY24 even though the denominator was lower, it does look a pragmatic target. It does look likely that the target of 4.5% will be achieved in FY26.
Within the confines of the fiscal space that is available, the government is channelling enough for capex which is almost 40% of the additional total outlay. This is being directed to roads, railways and defence and it can have positive linkage effects with industries like steel, cement, capital goods etc. the states would continue to get around Rs 1.3 lakh crore from the centre and would be expected to also ramp up their spending.
From the banking perspective, a lower gross borrowing programme augurs well as there will be less pressure on the system for deployment of funds. Also given that more FPI will flow to GSecs, they can use their funds for financing credit.