Finance Minister stays on fiscal consolidation path, pegs fiscal deficit at 4.4% of the GDP for FY26

Fiscal deficit target for FY26

India will continue on the fiscal consolidation path, with finance minister Nirmala Sitharaman setting the fiscal deficit target for the financial year 2025-26 at 4.4 percent of the GDP against 4.8 percent in 2024-25.

The number put out by Sitharaman in her Budget speech on February 1 is in lower with the MC poll of 15 economists, which pegged the deficit target at 4.5 percent.

Some economists said the government may go for an even lower fiscal deficit of 4.3-4.4 percent.

Bank of Baroda and HDFC Bank both said the fiscal deficit target would be set lower than 4.5 percent, within the 4.3-4.4 percent range.

In her previous budget speech, the finance minister had reiterated the government’s commitment to reduce fiscal deficit to 4.5 percent of the GDP or lower by FY26.

Lowering deficit is vital for India, which has been eyeing a rating upgrade.

The lower deficit also comes amid economists’ demand to ease fiscal consolidation to boost growth, which is expected to dip to 6.4 percent in 2024-25 from 8.2 percent in the previous year.

The government could meet the FY25 target as a bonus dividend from the Reserve Bank of India of Rs 2.1 lakh crore, along with muted spending, helped keep the deficit in check despite lower-than-expected growth.

India’s nominal growth is estimated to have dipped to 9.7 percent in FY25 compared with the Budget expectation of 10.5 percent.

In the first eight months, fiscal deficit at Rs 8.5 lakh crore had crossed the halfway mark at 52.5 percent and marginally exceeded the previous year’s number of 50.7 percent.