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Despite the government’s Rs 1 lakh crore revenue forego due to income tax relaxation in FY26, the government has fixed a fiscal deficit target of 4.4 per cent, which is in line with the government’s commitment of “below 4.5%” next year. Check latest debt-to-gdp, fiscal…Read More
Presenting the Budget 2025-26 in the Lok Sabha, Sitharaman said the Revised Estimate of the fiscal deficit is 4.8 per cent of GDP, which is better than the 4.9 per cent estimated in the last Budget Speech 2025-26. (Photo: PTI)
Despite the tax bonanza for the middle class, the government has stayed on the fiscal consolidation path as the fiscal deficit for the next financial year 2025-26 has been pegged at 4.4 per cent. This is in line with Sitharaman’s announcement last year to contain fiscal deficit ‘below 4.5 per cent’ in FY26.
The fiscal deficit for the financial year 2024-25 has been revised at 4.8 per cent, which is an improvement over the 4.8 per cent Budget Estimate last year.
The fiscal deficit is the gap between expenditure and revenue (excluding borrowing).
Fiscal Deficit
Presenting the Budget 2025-26 in the Lok Sabha, Sitharaman said, “The Revised Estimate of the fiscal deficit is 4.8 per cent of GDP.”
This is better than the 4.9 per cent estimated in the last Budget Speech 2025-26.
For the next financial year 2025-26, the finance minister has fixed a target of 4.4 per cent, which is within the target of “below 4.5 per cent” deficit announced in the last budget.
In absolute terms, the fiscal deficit has accordingly come down to Rs 15.69 lakh crore against Rs 15.70 lakh crore estimated earlier for the current financial year.
“Our endeavour will be to keep the fiscal deficit each year such that the central government debt remains on a declining path as a percentage of the GDP. The roadmap for the next 6 years has been detailed in the FRBM statement,” Sitharaman said during her Budget Speech 2025-26 on Saturday.
This is the reiteration of the commitment made by the government last year. In her 2024-25 Budget Speech, Sitharaman had said, “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.”
Government’s Debt Target
The government proposes to adjust its fiscal deficit over the years in such a manner that it brings down the debt-to-GDP ratio over the years to 49%-50%.
The government has provided its new fiscal consolidation road map and aims to bring down the debt-GDP ratio to 49 per cent-51 per cent (+-50 per cent) by FY2030-31, provided that the nominal GDP grows at a rate of 10-11 per cent.
“As per the path for fiscal consolidation – FY 2026-27 to FY 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 50±1 per cent by 31st March 2031,” the finance ministry said in a statement on Saturday, February 1, 2025.
The central government’s debt-to-GDP ratio is estimated to decline to 56.1 in FY 2025-26 from 57.1 in FY 2024-25.
Along with these, revenue deficit is also on declining trend and is expected to reduce from 4.8 per cent of GDP in FY 2024-25 to 4.4 per cent of GDP in FY 2025-26.
Govt Spending
On Saturday, Sitharaman said the government expects a total expenditure (capex) of Rs 50.65 lakh crore for the next financial year 2025-26.
This is higher than the revised capex of Rs 47.16 lakh crore in the current financial year 2024-25. In the previous Budget 2024-25, the government had estimated a total expenditure of Rs 48.21 lakh during the current fiscal.
How Is Govt Able To Stay On Fiscal Consolidation Path Despite Tax Cut?
The government is estimated to forego about Rs 1 lakh crore from the tax relaxations announced on Saturday, in which those earning up to Rs 12 lakh a year will have to pay no tax and others have also received tax reliefs.
During a post-Budget press conference, Union Finance Minister Nirmala Sitharaman said, “There is no reduction in the public spending on capital expenditure. We continue to place emphasis on the multiplier effect that capital expenditure done by government has shown has sustained us. We continue on that, and with all this, our fiscal prudence has been maintained.”
