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In advance of Finance Minister Nirmala Sitharaman’s unveiling of the Union Budget, the State Bank of India reported that the Union Government may aim for a fiscal deficit in FY25 of less than 5% of GDP, maybe as low as 4.9%.

Notably, the administration set a 5.1% GDP fiscal deficit goal for FY25 in the Interim Budget.

The SBI report’s reduction in the projected budget deficit is supported by the enormous increase in GST revenues as well as increased PSU and RBI dividends.

Furthermore, the article said that the 2019 budget is projected to raise capital spending, which was planned at Rs 11.8 lakh crore in the interim budget, from Rs 11.1 lakh crore.

The government’s overall capital expenditure (capex)—which includes capital expenditures via grants for capital asset development and budget and CPSE—is thus expected to rise from Rs 18.4 lakh crore to Rs 19.1 lakh crore in FY25.

According to the research, there is an expectation of 11% growth in the nominal GDP and a tax buoyancy of 1.2-1.3, with a growth in gross tax revenue above 13%.

The government’s total market borrowing would drop to around Rs 13.5 lakh crore in FY25 from Rs 14.1 lakh crore in the interim budget as the estimated fiscal deficit is reduced.

Subsequent net market borrowing may drop from Rs 11.8 lakh crore to Rs 11.1 lakh crore. The paper said that this, together with India’s membership in Global Bond indexes, would keep changes in the yield curve anchored.

The report went on to say that while the government must maintain its fiscal prudence and pursue fiscal consolidation, it should avoid becoming overly fixated on the issue because doing so could impede the path to long-term, sustainable growth. Instead, it should strike the right balance by keeping fiscal consolidation to a maximum of 20 basis points this fiscal year when compared to the interim budget.

It made clear that the Center’s non-tax revenue share has decreased over time. In the meanwhile, between FY14 and FY25, the share of income tax has grown while the percentage of corporate tax has decreased in terms of tax revenue.

In addition, the opportunity cost of these alternative investments may be quite profitable due to the ability to set off losses against earnings and carry over losses for up to eight years.

According to the SBI research, the government should modify the “tax on deposits interest” and implement flat tax treatment for all maturity ladder levels.