No commitment to lowering fiscal deficit, says Montek Singh Ahluwalia

Former Planning Commission deputy chairman Montek Singh Ahluwalia on Tuesday said there is no commitment at present in reducing the fiscal deficit which stood at around 7 per cent at combined level of the Centre and states. 

 

“Earlier, there was at least a clear focus on reducing the fiscal deficit. However, the current discussions revolve around gently lowering the debt-to-GDP ratio, which essentially implies maintaining a relatively robust  fiscal deficit,” he emphasised.

 

The Centre has projected its fiscal deficit to fall to 4.9 per cent of the country's gross domestic product in the current financial year from 5.6 per cent in FY 24 and reduce it further to below 4.5 per cent next year. However, from 2026-27 onwards it would not target any fiscal deficit number but would concentrate on debt-GDP ratio. 

 

 

Ahluwalia said if household net savings continue to decrease and fiscal deficit reduction is neglected, it could lead to significant problems, including crowding out of private investments. 

 

“The decline in household net savings coincides with an environment where there seems to be no commitment to reducing the fiscal deficit,” he said at a seminar titled India’s Saving-Investment Conundrum organised by the Delhi-based Centre for Social and Economic Progress.

 

The seminar focused on analysing India’s saving and investment trends over time and their policy implications. During the discussion, Nikhil Gupta, Chief Economist at Motilal Oswal, and Shishir Gupta, Senior Fellow at CSEP, presented their findings on the country's saving and investment landscape.

 

The presentations highlighted the reasons behind the decline in India’s investment levels over the past 4-5 years, noting that the average investment has fallen to around 31 per cent of GDP, compared to approximately 36 per cent of GDP during the 2003–2011 period.

 

Nikhil Gupta observed that while total investments and savings have returned to pre-pandemic levels, corporate investments remain notably low  despite corporate savings being significantly high.

 

He further highlighted that government capital expenditure has remained largely stable, while there has been increase in overall investments driven primarily by household capex. 

 

Notably, two-thirds of this household capex is attributed to residential investments. However, household savings have declined, falling to 18.7 per cent  of GDP in FY24 from 20.3 per cent  of GDP in FY19.

 

Shishir Gupta attributed the sluggish growth in investments and the decline in net household savings primarily to reduced exports of goods and services coupled with lower GDP growth projections for India in the coming years.