Fiscal Deficit for FY26 Estimated at 4.4% of GDP

The Indian government has outlined an ambitious plan aimed at managing its fiscal health over the next six years. In a recent announcement, Finance Minister Nirmala Sitharaman projected the fiscal deficit for the financial year 2025-26 to be 4.4% of the country’s GDP (gross domestic product). This figure represents a significant move to ensure that the nation's finances are more stable.

Additionally, the fiscal deficit target for the current financial year has been revised down to 4.8% of GDP, a reduction from the previously estimated 4.9%. This downward revision reflects the government's commitment to adhering to the guidelines set forth in the Fiscal Responsibility and Budget Management (FRBM) Act of 2003, which mandates that the fiscal deficit should be below 4.5% by FY26.

Fiscal Roadmap Announcement

During her announcement, Minister Sitharaman emphasized that the government’s objective is to maintain the fiscal deficit at levels that ensure the Central Government debt remains on a declining trajectory as a percentage of GDP. As part of this plan, the government has detailed a fiscal roadmap for the next six years within the FRBM statement.

According to the revised estimates, the total expected receipts, excluding borrowings, stand at ₹31.47 lakh crore, with ₹25.57 lakh crore coming from net tax receipts. The total expenditure is pegged at ₹47.16 lakh crore, which includes approximately ₹10.18 lakh crore allocated for capital expenditure.

Details of Fiscal Deficit for FY26

In sheer numbers, the fiscal deficit for 2025-26 is expected to decrease slightly to ₹15.69 lakh crore compared to ₹15.70 lakh crore projected for the current fiscal year. To finance this fiscal deficit, the government anticipates net market borrowings from dated securities to be around ₹11.54 lakh crore. The remainder of the financing will be sourced from small savings and other means, with gross market borrowings expected to reach ₹14.82 lakh crore.

Debt-GDP Ratio Goals

A key part of the government's fiscal strategy is to decrease the debt-to-GDP ratio to around 56% by the conclusion of FY26. This glide path has been structured to consider various economic scenarios that might unfold over the next five years.

Furthermore, for the years following FY26, from FY27 to FY31, the government aims to continue reducing the debt-GDP ratio, targeting roughly 50% by March 31, 2031, the concluding year of the 16th Finance Commission cycle. Minister Sitharaman explained that the approach taken will be adaptive, offering the government the necessary flexibility to address unforeseen events while simultaneously aiming for sustainability in its debt management.

Global Standards Alignment

The budget document notes that adopting the debt-to-GDP ratio as a fiscal anchor aligns with contemporary global practices. This shift encourages a move away from strict annual fiscal targets to more transparent and flexible fiscal standards, recognized as a more dependable marker of fiscal performance.

The debt-to-GDP fiscal strategy is expected to aid in rebuilding financial buffers and creating space for investments that could spur growth in the economy.

Fiscal, Deficit, Government