The government has done a fine balancing act of boosting capital expenditure while consolidating the fiscal deficit. The quality of government expenditure has improved consistently in the last three years with capex to total expenditure rising from 12% in FY21 to 22% in FY24. This should enhance future growth potential of the economy and should lead to higher revenues for the government over medium to long term.
From bond market’s perspective, reduction of fiscal deficit to 5.9% of GDP and lower than expected market borrowing of Rs. 15.4 trillion were somewhat positive. Government reiterated its commitment to further consolidate its fiscal deficit to below 4.5% of GDP by FY 2025-26. This should help investor sentiment in the bond market. We expect the government bond yields to remain around current levels or decline marginally over the coming months.
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