New 5-year target set to cut Centre's debt to 50% of GDP

Union Budget has sought to signify the govt's commitment to fiscal prudence and infra creation

- Gireesh Chandra Prasad and Rhik Kundu

NEW DELHI: The Union Budget has set a new five-year target to cut the central government's debt to 50% of gross domestic product, give or take 1%, by 31 March, 2031.

The budget also sought to signal the Narendra Modi government's commitment to fiscal prudence and infrastructure creation, including by supporting the states.

The budget documents showed that the new goal is to keep fiscal deficit—the gap between revenue receipts and spending—in each year from FY27 to FY31 such that the Centre's debt as a share of GDP reaches this target, down from 57.1% in FY25, provided there are no major exogenous macroeconomic shocks.

Department of economic affairs secretary Ajay Seth said the Centre's debt-to-GDP ratio will decline going ahead, depending on the growth of the economy, and what kind of further consolidation measures will be needed.

"The road map suggests three scenarios, mild, moderate and high fiscal consolidation," Seth said. The highest level of fiscal consolidation can go as low as a debt of 47.5% of GDP, Seth said.

Tax bounty A strong 20% growth in personal income tax collection achieved in FY25 helped Sitharaman offer personal income tax relief under the new tax regime at a cost of ₹1 trillion to the exchequer beginning FY26, and still balance spending and revenue receipts in FY26, both of which are projected to grow at 7.4% annually.