The Indian government has maintained its fiscal discipline even as calls for tax relief grow among the middle class. According to the latest budget estimates, the government has lowered its budget gap target to 4.8% for the fiscal year ending March 31, down from 4.9%. This adjustment seems to be bolstered by decreased spending on planned capital investments and unexpected larger central bank dividends. For fiscal 2026, the Indian government estimates total receipts of Rs 34.96 lakh crore and total expenditures of Rs 50.65 lakh crore, resulting in projected net tax receipts of Rs 28.37 lakh crore. The fiscal deficit for 2026 is expected to fall within the range of 4.4% to 4.6% of GDP.
Meanwhile, New Delhi plans to borrow gross Rs 14.82 lakh crore from the debt market next fiscal year, slightly higher than the current fiscal year's target of Rs 14.01 lakh crore. According to the government’s first advance estimates, India's GDP is forecasted to grow by only 6.4% for FY25, which is considerably lower than last year’s impressive 8.2% growth.
Prime Minister Narendra Modi, now serving his third term, faces challenges with weakened political support from allies such as Chandrababu Naidu and Nitish Kumar. His government had previously allocated substantial funds for projects in states governed by these allies, but similar allocations may strain India's fiscal situation. There are strong demands for increased tax benefits aimed at the salaried class, which, if implemented, might boost consumption but could negatively impact fiscal revenues.
Encouraged by successes in recent electoral victories within Maharashtra and Haryana, the Modi government aims to deliver a budget characterized by reform, improved living standards, and business facilitation. The government hopes to narrow the budget deficit supported by promising tax revenue forecasts, even as they continue to prioritize public investments meant to stimulate growth and job creation. The broader goal is for India to emerge as the world’s third largest economy by 2030.
While fiscal discipline aims to stabilize the economy post-COVID-19, capital expenditure saw a decline of 12.3% year-on-year from April to November, partly attributed to general elections and adverse weather conditions. The Reserve Bank of India’s recent transfer of Rs 2.11 lakh crore to the government significantly surpassed initial budget expectations.
India's fiscal deficit reached 5.6% of GDP for FY24, which is below the previous year’s revised estimate of 5.8%. Net direct tax collections have surged by 15.9% year-on-year up to January 12, totaling approximately Rs 16.90 lakh crore. These increases indicate the government is on track to meet its budget deficit targets and maintain fiscal discipline—vital for enhancing credit ratings after recovering from high deficits during the pandemic.
Meanwhile, Islamic banking deposits in Bangladesh have shown fluctuation recently, according to the Bangladesh Bank. Last October, these deposits amounted to Tk 432,937 crore—down 0.31% from September after peaking at Tk 440,427 crore earlier last year. Full-fledged Islamic banks hold most of these deposits at Tk 386,314 crore, followed by conventional banks' Islamic banking branches and windows.
Despite the downturn, the segment of Islamic banking windows recorded the highest growth, increasing deposits by 3.55% last October. This sector, operating under interest-free principles, now comprises about 23.10% of the country's total banking deposits. Investments have also risen slightly, reaching Tk 518,438 crore—up 0.29% from September.
The central bank has implemented measures to alleviate liquidity challenges faced by Islamic banks, such as the Islamic Bank Liquidity Facility and Mudarabah Liquidity Support. Compounding these challenges, the sector can’t depend on interest-based borrowing to manage short-term liquidity, contrasting with conventional banks.
The fluctuations are also shaped by customer preferences, as many depositors favor Shariah-compliant savings schemes. The competition with conventional banks offering higher returns remains significant, but innovations and improving financial literacy can attract more deposits.
Adding to this scenario, remittance inflows through Islamic banks fluctuated, with Tk 7,013 crore reported through these channels last October, representing an 8.27% increase from September. To sustain growth, Islamic banks seek to expand their service offerings by introducing new financing products.
Lastly, the Central Bank of Cyprus has followed suit by announcing their official reference interest rate will be set at 11.50%. This policy applies to all banks and lenders within Cyprus, prohibiting them from charging rates above this threshold for loans and renewals. Violations can lead to severe penalties, including substantial fines or imprisonment.
This adjustment aligns with consecutive interest rate cuts by the European Central Bank, aimed at bolstering the eurozone's sluggish economy marked by slow growth and weak consumer spending. Cyprus’s protective stance hopes to guard its residents against exorbitant loan charges, contributing positively to local financial stability.
Collectively, these financial narratives from India, Bangladesh, and Cyprus showcase diverse but interconnected approaches aimed at managing fiscal challenges, responding to market dynamics, and ensuring sustainable economic growth across different regions.