India’s Financial Policy: Nirmala Sitharaman Highlights Fiscal Discipline and Growth.
India’s Finance Minister, Nirmala Sitharaman, reaffirmed the country’s commitment to fiscal discipline and economic development on Sunday, emphasizing that India has never deviated from its fiscal consolidation and debt reduction targets. Her statement comes after global rating agencies, such as Moody’s, did not upgrade India’s credit rating despite its strong economic fundamentals.
Balancing Fiscal Discipline and Economic Growth
The Indian government is actively working to maintain a balance between fiscal discipline and development, implementing policies to control the debt-to-GDP ratio, prioritize capital expenditure, and reduce the fiscal deficit in a structured manner. Sitharaman stressed that India remains focused on long-term economic stability, ensuring that public investments continue without jeopardizing financial prudence.
Rupee Volatility: Finance Minister Defends Currency Stability
During her address, Sitharaman responded to concerns about the exchange rate fluctuations of the Indian rupee, dismissing the notion that the rupee is weakening. She stated,
“Our macroeconomic fundamentals are strong. If they were weak, the rupee would not have remained stable against other global currencies.”
She acknowledged that the rupee’s volatility is mainly against the US dollar, but emphasized that, compared to other currencies, the Indian rupee has remained far more stable. The Reserve Bank of India (RBI) is also closely monitoring the situation and is prepared to intervene if necessary to correct excessive fluctuations.
Sitharaman further explained that the rupee’s recent depreciation against the dollar is a result of factors such as:
- A rising trade deficit
- The strengthening of the US dollar
- The US Federal Reserve’s decision to delay interest rate cuts until 2025
India’s Fiscal Plans: Key Announcements in Budget 2025-26
In the upcoming financial year 2025-26, Sitharaman outlined a well-structured plan in her eighth budget, which includes:
- Major tax relief for the middle class
- A roadmap for reducing the fiscal deficit
- A strategy to lower the debt-to-GDP ratio by 2031
She explained that during the COVID-19 pandemic, the government had to borrow more due to global challenges, supply chain disruptions, and geopolitical conflicts. Despite these hurdles, the government adhered to its fiscal deficit targets and maintained financial discipline.
Moody’s Rating Decision: Sitharaman Responds to Credit Assessment
On Saturday, Moody’s Rating Agency declined to upgrade India’s sovereign credit rating, citing the need for a significant reduction in debt levels and higher revenue generation. Currently, Moody’s classifies India under a “Baa3” stable outlook, the lowest investment-grade rating.
Moody’s Senior Vice President, Christian de Gusman, acknowledged India’s strict fiscal policies and efforts to reduce its deficit but emphasized that an upgrade would require further improvements in debt management and revenue collection.
Sitharaman responded by stating that India is implementing concrete measures to control borrowing and reduce the debt-to-GDP ratio, adding that the country’s financial discipline is stronger than that of many advanced economies.
Fiscal Deficit Reduction and Capital Expenditure Growth
In her budget presentation to Parliament, Sitharaman announced that:
- The fiscal deficit for 2024-25 will be 4.8%, aligned with the government’s target.
- It will be further reduced to 4.4% in 2025-26 as part of a phased strategy.
- The government will ensure its debt management strategy aligns with expert committee recommendations.
She also clarified that public expenditure will not be reduced, as capital investments are crucial for economic growth. The government has set a record-high capital expenditure target of ₹11.21 lakh crore for 2025-26, which exceeds the revised estimate of ₹10.18 lakh crore for the previous year.
State Governments and Infrastructure Development
The Finance Minister highlighted the active participation of states in capital expenditure projects. She noted that the 50-year interest-free loans provided by the central government to states have been effectively utilized, leading to improved quality of spending.
However, she acknowledged that capital expenditure in 2024-25 fell slightly below the ₹11.11 lakh crore target due to delays caused by the election process.
India’s Commitment to Financial Stability
Sitharaman reassured that India will gradually reduce its debt-to-GDP ratio while ensuring financial commitments are met. She emphasized that other developed nations do not enforce such strict financial discipline, yet India continues to prioritize fiscal responsibility without cutting social welfare programs.
She also stated that the government is not just focusing on big-budget allocations but is ensuring that spending quality improves. The interest-free loans provided to states will further accelerate infrastructure development, supporting long-term economic growth.
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