Growth guides consolidation pace; comfortable with 4.3% fiscal deficit target for FY27, says FM Sitharaman

Finance Minister Nirmala Sitharaman

• Fiscal deficit for FY25 reduced to 4.8 percent of GDP from 5.6 percent in FY24
• Centre aims for 4.3% fiscal deficit, prioritizing growth and consolidation
• India's debt-to-GDP ratio to drop to 55.6% in FY27 from 56.1%

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The central government is “comfortable” targeting a fiscal deficit of 4.3 percent of GDP, Finance Minister Nirmala Sitharaman said, stressing that fiscal consolidation depends on the pace of economic growth each year.

The minister said the fiscal deficit for the current year has been brought down to 4.4 per cent of GDP, meeting the aim of keeping the target below 4.5 percent of the GDP.

While sharper reductions in the fiscal deficit were achieved in previous years, the government has focused on the growth outlook of each year to decide the pace of consolidation, she said while briefing reporters on February 2.

The fiscal deficit target for FY27 is just 10 percentage points lower than the aim for the current financial year.

In FY25 stood at 4.8 per cent of GDP, marking a sharp 80-percentage-point reduction from 5.6 percent in FY24.

Emphasising that sustaining economic growth remains a priority, Sitharaman said capital expenditure continues to be a priority for the government as has been the case since the pandemic years.

Allocation for Centre’s capital expenditure is set to cross Rs 12.2 lakh crore for the first time in FY27, higher than the estimated net market borrowing of Rs 11.7 lakh crore.

“We have not compressed spending to keep to a fiscal consolidation path,” the minister said.

The government will not “overlook” reducing the fiscal deficit in percentage terms even as it shifts focus to lowering the debt-to-GDP ratio from the current financial year, Sitharaman said.

“We are focusing on debt to GDP, but that does not mean we are overlooking the fiscal deficit as a percentage of GDP. We want to bring it down while creating assets. This is a work in progress,” Sitharaman said.

Last year, the Centre decided to target a fiscal deficit path that would bring down its debt-to-GDP ratio to the 49–51 percent range by 2030-31, starting from financial year 2026-27.

In line with this decision, Sitharaman said that India’s debt to GDP ratio is set to decline to 55.6 percent in FY27.

This would be against a debt to GDP ratio of 56.1 percent in the current financial year.

Sitharaman presented her ninth Union Budget on February 1.