No plans to go back to FRBM target of 40% debt-to-GDP ratio immediately, says Expenditure Secy Manoj Govil

The choice of debt-to-GDP ratio as the fiscal anchor is in line with current global thinking.

With the Budget for 2025-26 introducing a new roadmap for its debt-to-GDP ratio, the Centre has no plans to immediately go back to the earlier target of 40 percent set by the Fiscal Responsibility and Budget Management (FRBM) Review Committee, Expenditure Secretary Manoj Govil said.

“As far as 40 percent is concerned, there is no plan to go back to 40 percent immediately, now the plan is to target 50 percent, plus, minus 1 percent by 2031. The fiscal deficit may vary from year to year, sometimes it could be higher, sometimes it could be lower. That is unsaid, what is said is that the debt level will be brought down to that level,” Govil told Moneycontrol in an interview.

The FRBM Review Committee, in its January 2017 report, had recommended the central government reduce its debt-to-GDP ratio to 40 percent by 2022-23. The government amended the FRBM law to say that this target should be achieved by the end of 2024-25.

However, the COVID pandemic sent public debt soaring across the world, including in India, as governments borrowed heavily to support their economies amid a decline in tax collections.

Presenting the Budget for 2025-26 on February 1, Finance Minister Nirmala Sitharaman reiterated the Centre's commitment to link its fiscal deficit glide path to debt-to-GDP ratio.

The Centre therefore from financial year 2026-27 will target a fiscal deficit that will bring down its debt-to-GDP ratio in the 49-51 percent range by 2030-31.

This means that the new medium-term fiscal consolidation path has been linked to a reduction in the debt-to-GDP ratio instead of merely focusing on progressively targeting a narrower fiscal deficit target.

The choice of debt-to-GDP ratio as the fiscal anchor is in line with current global thinking. It encourages shift from rigid annual fiscal targets towards more transparent and operationally flexible fiscal standards.

For the year 2025-26, the Centre is targeting a fiscal deficit of 4.4 percent of the GDP, while for the current financial year it has been scaled down to 4.8 percent from 4.9 percent earlier.