New Delhi, Jan 30 (PTI) The upcoming Union Budget for 2026-27 is expected to place significant emphasis on easing the debt-to-GDP ratio, which currently stands at approximately 56 percent, rather than targeting a specific fiscal deficit number. This strategic shift comes as India approaches the conclusion of the glide path outlined in the Fiscal Responsibility and Budget Management (FRBM) legislation.
Moving Beyond Fiscal Deficit Targets
For a growing, developing economy like India, a fiscal deficit of 3-4 percent is generally considered comfortable and desirable, aiming to balance robust economic expansion with essential financial stability. Under the revised FRBM Act, the fiscal deficit target was set below 4.5 percent of GDP for the fiscal year 2025-26.
Consequently, the central government has announced a new glide path that establishes the debt-to-GDP ratio as the primary fiscal anchor. This roadmap for the next six years was formally introduced in the FRBM statement released on February 1, 2025.
Finance Minister's Vision for Fiscal Consolidation
Finance Minister Nirmala Sitharaman, during her Budget speech in July 2024, articulated the government's commitment to fiscal discipline. She stated, "The fiscal consolidation path announced by me in 2021 has served our economy very well, and we aim to reach a deficit below 4.5 percent next year. The government is committed to staying the course."
Looking ahead from 2026-27, Sitharaman emphasized, "Our endeavour will be to keep the fiscal deficit each year such that the central government debt will be on a declining path as a percentage of GDP."
Advantages of Debt-to-GDP Based Strategy
This approach encourages a transition from rigid annual fiscal targets towards more transparent and operationally flexible fiscal standards. The debt-to-GDP ratio is widely recognized as a more reliable measure of fiscal performance, as it comprehensively captures the cumulative effects of both past and current fiscal decisions.
It is anticipated that this debt-to-GDP-based fiscal consolidation strategy will help rebuild fiscal buffers and provide the necessary space for growth-enhancing expenditures, thereby supporting sustainable economic development.
FRBM Statement and Future Fiscal Scenarios
The FRBM statement dated February 1, 2025, highlighted that the choice of fiscal anchor aligns well with the government's sustained efforts to promote fiscal transparency, particularly through proper disclosure of off-budget borrowings.
For the period spanning FY 2026-27 to FY 2030-31, it is possible to compute several fiscal scenarios based on GDP growth trends and varying degrees of fiscal calibrations. The statement elaborated, "Sans any major macro-economic disruptive exogenous shock(s), and while keeping in mind potential growth trends and emergent development needs, the government would endeavour to keep fiscal deficit in each year (from FY 2026-27 till FY 2030-31) such that the central government debt is on declining path to attain a debt-to-GDP level of about 50±1 percent by March 31, 2031 (the last year of the 16th Finance Commission cycle)."
This forward-looking strategy underscores a pragmatic shift in fiscal management, prioritizing long-term debt sustainability over short-term deficit targets, which is crucial for India's economic resilience and growth trajectory.
