The International Monetary Fund’s (IMF) Asia-Pacific director, Krishna Srinivasan, stated on Thursday that India has the capacity to sustain additional subsidies and Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) costs without exceeding its fiscal deficit target of 5.9% for this financial year.
This assertion comes amid mounting pressure on Prime Minister Narendra Modi’s party, as they face impending state elections and national polls in 2024. The political climate has heightened the need to support farmers and create jobs, which could potentially inflate the annual spending. Despite these potential increases, the central government is projected to meet its fiscal deficit target for the financial year 2023-24.
Recently, India increased the cooking gas subsidy for low-income households. This move is part of the planned 3.74 trillion rupees ($50 billion) of subsidies for food, fertilizer, and fuel this year.
The IMF revised its growth forecast for India, Asia’s third-largest economy, up to 6.3%, suggesting there is budgetary capacity to absorb unexpected rises in expenditures such as subsidies and MNREGA expenses. This flexibility allows the Indian government to maintain its fiscal plans while addressing socio-economic demands.
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