The Centre 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.
"Sans any major macro-economic disruptive exogenous shock(s), and while keeping in mind potential growth trends and emergent development needs, the Government would endeavour to keep fiscal deficit in each year (from FY 2026-27 till FY 2030-31) such that the Central Government debt is on declining path to attain a debt to GDP level of about 51 percent, plus or minus 1 percent, by March 31, 2031," the Budget documents say.
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 fiscal consolidation path announced by me in 2021 has served our economy very well. From 2026-27 onwards, our endeavour will be to keep the fiscal deficit each year such that the Central Government debt will be on a declining path as percentage of GDP," Sitharaman said in her Budget speech.
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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.
It is also recognised as a more reliable measure of fiscal performance as it captures the cumulative effects of past and current fiscal decisions, the Statement of Fiscal Policy released along with Budget documents, said.
It is expected that the debt-to-GDP based fiscal consolidation strategy would help rebuild buffers and provide requisite space for growth-enhancing expenditures, the statement added.
The Centre’s debt, based on the Fiscal Responsibility and Budget Management Act, 2003 (FRBM) definition, was estimated to be at 57.1 percent of GDP as per the revised estimates for 2024-25 and is seen at 56.1 percent in 2025-26.
For FY25, the Centre revised its fiscal deficit target to 4.8 percent of the GDP from 4.9 percent earlier and projected it at 4.4 percent for FY26.
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