Budget 2026: FM Sitharaman targets 4.3% fiscal deficit; rejects ‘drastic changes’ to ensure investor confidence

Our macro-economic fundamentals are strong, said the FM.

• Drastic fiscal deficit changes harm economy, says FM Sitharaman
• FY27 fiscal deficit pegged at 4.3 percent of GDP, down from 4.4 percent in FY26
• Debt-to-GDP ratio to decline, freeing resources for priority sector spending

Did our AI summary help?

Drastic changes to fiscal deficit don’t go down well for the economy, Finance Minister Nirmala Sitharaman said on Sunday. She added that the fiscal deficit has to be at a rate, which gives confidence to investors, and reflect that the government cares for management of "fiscal prudence"

She was speaking at the post-Budget press conference. "Consolidation of fiscal deficit has to be steady, so that economy goes in a steady speed," said the FM.

The Union Budget has pegged FY27 fiscal deficit at 4.3 percent of the GDP, 10 basis points lower than 4.4 percent pegged for FY26. "Our macro-economic fundamentals are strong. Uncertainties are affecting us on many grounds, and we are seized of it," the FM said.

At the conference, Economic Affairs Secretary Anuradha Thakur said that the fiscal anchor for the government from FY27 will be both debt-to-GDP ratio, as well as the fiscal deficit target.

The debt-to-GDP ratio is estimated to be 55.6 percent of GDP in BE 2026-27, compared to 56.1 percent of GDP in RE 2025-26. A declining debt-to-GDP ratio will gradually free up resources for priority sector expenditure by reducing the outgo on interest payments, Sitharaman said in her Budget speech.

On net market borrowing, which is pegged at Rs 11.73 lakh crore for FY27, Thakur said that this estimate has has been around this level for the last few years. “We also don’t think the gross borrowing (Rs 16.6 lakh crore) is a large number, we have a plan how to manage this."

The DEA Secretary also highlighted that the government is reviewing the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, to address concerns of foreign investors.

The FEM (NDI) Rules, are the primary regulations governing foreign investment in India. They dictate how non-residents can invest in "non-debt" assets—essentially equity-like instruments where the returns are not fixed.

The rules were recently amended to ensure that investments by entities owned/controlled by Overseas Citizens of India (OCIs) are treated on par with NRIs on a non-repatriation basis, meaning they aren't counted toward "indirect foreign investment" limits.