Centre Aims for Fiscal Deficit of 4.3% in 2026-27, Debt Ratio to Decline to 55.6%
The Indian government has set a target to limit the fiscal deficit to 4.3% of gross domestic product (GDP) in the financial year 2026-27, down from the revised estimate of 4.4% in 2025-26. Concurrently, the debt-to-GDP ratio is projected to decrease to 55.6% of GDP in the upcoming fiscal year, compared to 56.1% in 2025-26. These figures were outlined in the Union Budget 2026-27, reflecting the Centre's ongoing commitment to fiscal consolidation.
Finance Minister Highlights Fiscal Consolidation Progress
Finance Minister Nirmala Sitharaman emphasized that a declining debt-to-GDP ratio will gradually free up resources for priority sector expenditures by reducing the outgo on interest payments. She stated, "A declining debt-to-GDP ratio will gradually free up resources for priority sector expenditure by reducing the outgo on interest payments." Sitharaman also noted that she has fulfilled her commitment made in Parliament in FY 2021-22 to reduce the fiscal deficit below 4.5% of GDP by 2025-26.
The government has adhered to the path of fiscal consolidation, with measures implemented since 2021-22 resulting in a significant improvement in the fiscal deficit. It has decreased from 6.7% of GDP in 2021-22 to 4.4% of GDP in 2025-26 in the revised estimates. For 2026-27, the fiscal deficit is projected to be Rs 16.96 lakh crore in the budget estimates, translating to a fiscal deficit-to-GDP ratio of 4.3%.
Revenue Deficit Remains Stable
According to the fiscal policy statement, the revenue deficit is estimated at 1.5% of GDP in the budget estimates for 2026-27, maintaining the same level as the revised estimates for 2025-26. This stability indicates a balanced approach to managing government finances while pursuing deficit reduction.
Expert Analysis on Fiscal Targets
Experts have provided mixed reactions to the budget's fiscal projections. Christian de Guzman, senior vice president at Moody's Ratings, commented, "While the government continues to demonstrate its commitment to—and a lengthening track record of—fiscal consolidation, it has targeted a narrowing of the fiscal deficit by only 0.1 percentage points of GDP in fiscal year 2026-27, the smallest pace of reduction since India emerged from the pandemic. As such, the deficit remains wider than any of those incurred during the current government's first term in office."
On the other hand, some analysts view the fiscal math as credible. Barclays noted in a report, "The budget assumes nominal GDP growth at 10% (current base) for FY26-27, in line with our expectations. Revenue projection is also conservative, in our view, assuring of realistic fiscal math. If anything, we believe the balance of risk lies in over-achieving the target."
Budgetary Receipts and Expenditure Projections
The budget outlines that total receipts are projected to grow by 7.2% in FY26-27, compared to 10.7% in FY25-26 revised estimates. Meanwhile, total expenditure is expected to increase by 7.7%, up from 6.7% in FY25-26. These figures suggest a cautious yet growth-oriented fiscal strategy aimed at sustaining economic momentum while managing deficits.
Overall, the Union Budget 2026-27 underscores the Centre's efforts to strengthen fiscal discipline, with targeted reductions in deficits and debt ratios paving the way for enhanced resource allocation in priority sectors.
