India’s fiscal deficit to narrow as tax revenues grow: World Bank
New Delhi: India's fiscal deficit is forecasted to narrow steadily, supported by increasing tax revenues, as per the latest World Bank report.
"In India, fiscal deficits are expected to continue shrinking, largely on account of growing tax revenues," the report stated, emphasising that this trend aligns with the government's fiscal consolidation efforts.
While fiscal deficits across South Asia are expected to remain tight, India stands out with a notable improvement in its fiscal position, the report highlighted.
Conversely, fiscal deficits in the region, excluding India, are projected to remain stable due to factors like increased interest payments in Pakistan and infrastructure investments in Bangladesh.
Despite India's improving fiscal outlook, the World Bank cautioned that South Asia's government debt-to-GDP ratios will remain high, albeit gradually declining.
"While government debt-to-GDP ratios in the region are expected to decline gradually, they will remain elevated," the report observed.
Debt-servicing costs are expected to stay high in several countries owing to persistent borrowing costs.
Inflation in South Asia is predicted to moderate further, aided by stabilising exchange rates.
The report noted that inflation is likely to stay within or below target ranges in countries like India, Nepal, and Sri Lanka.
India is projected to retain its status as the fastest-growing economy among the world's largest economies, with GDP growth expected at 6.7% for both FY2025-26 and FY2026-27.
The services sector in India is expected to see continued expansion, while manufacturing activity is poised for growth, bolstered by government initiatives to enhance logistics infrastructure and streamline tax reforms.
The report added, "The services sector is expected to enjoy sustained expansion, and manufacturing activity is anticipated to strengthen, supported by government initiatives to enhance logistics infrastructure and improve the business environment through tax reforms."
Private consumption growth is likely to benefit from an improving labour market, increasing credit availability, and easing inflation. However, government consumption growth is expected to remain constrained.
Investment growth in India is forecasted to remain robust, driven by rising private investments, strong corporate balance sheets, and improved financing conditions.
These factors are expected to fortify India's economic resilience in the years ahead.
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