It could strain the path to fiscal consolidation that the government had embarked on. And any slippage from its fiscal deficit target would be likely punished by the bond markets
Loosening one’s purse strings has more often than not been a sure-shot way to win over a fickle electorate. In light of his government retaining power with a diminished mandate, it remains to be seen if the new Narendra Modi-led government goes down this path.
A switch to a more populist form of spending—with higher subsidies, some handouts and loan waivers—could strain the path to fiscal consolidation that the government had embarked on. The fiscal glide path it proposed promised a fiscal deficit of 4.5 percent of GDP by 2025-26. (The number of FY24 came in at 5.8 percent.) Any slippage from this number at a time when interest rates are high globally would be likely punished by the bond markets.