Sat May 17 13:41:28 UTC 2025: **News Article:**

**India’s Fiscal Deficit Safe Despite Increased Defence Spending, Economists Say**

**New Delhi – May 17, 2025:** India’s central government can comfortably accommodate a proposed ₹50,000 crore increase in defence expenditure without exceeding its fiscal deficit target of 4.4% for the current financial year, according to economists. The Ministry of Defence is expected to request the additional funds in the Supplementary Demand for Grants in December.

Experts suggest that higher-than-anticipated revenue, coupled with the flexibility to adjust other areas of spending, will allow the government to absorb the increased defence budget. Favorable macroeconomic factors, such as softening global oil prices and consistent tax revenue growth, are also expected to provide a buffer.

“The actual impact of -0.14% of the Gross Domestic Product (GDP) may be offset by multiple factors throughout the year,” Rishi Shah, Partner at Grant Thornton Bharat told The Hindu.

Dr. Radhika Pandey, Associate Professor at the National Institute of Public Finance and Policy, echoed this sentiment, stating that the fiscal deficit target is unlikely to be breached even if the government accelerates defence procurement.

A key factor contributing to this fiscal resilience is the potential for higher dividend transfers from the Reserve Bank of India (RBI). The government is reportedly exploring options to increase these transfers, following a record dividend of ₹2.1 lakh crore from the RBI last year.

Historically, India has maintained fiscal deficit control during periods of heightened tensions, with exceptions during full-blown wars or global crises. Data analysis shows that past increases in defence spending, particularly during conflicts, were accompanied by a rise in the fiscal deficit. However, in other instances, such as after the 2001 Parliament attack and the 2016 Uri attack, the fiscal deficit fell.

“The government has enough fiscal space to do it, and it is expecting higher transfers of RBI dividends,” Madan Sabnavis, Chief Economist at the Bank of Baroda said. “There is likely additional revenue coming in for the government. If nothing else changes and only defence spending goes up, that can be absorbed.”

This assurance comes as India’s defence exports hit a new record of ₹23,622 crore for 2024-25, and the Defence Acquisition Council recently approved ₹54,000 crore in military hardware purchases.

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