Debt-GDP ratio to be cut to 50% by FY31

Fiscal deficit target at 4.4% for FY26, contingent upon debt reduction from FY27

- PRASANTA SAHU

To rebuild a buffer and provide space for growth-enhancing expenditures, the Centre unveiled a new medium-term fiscal consolidation plan centered around debt-to-GDP ratio reduction to 50% with a tolerance band of +/- 1 percentage points by FY31 with fiscal deficit pegged accordingly each year from FY27.

The debt reduction path from the projected 56.1% in FY27 is in line with the Budget 2024-25 announcement to shift fiscal anchor from fiscal deficit to GDP to debt-GDP.

"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," Finance Minister Nirmala Sitharaman said on Saturday.

Thanks to the savings of ₹93,000 crore from the capex outlay of ₹11.11 lakh crore for FY25, the Centre's fiscal deficit target has been lowered to 4.8% of GDP in the revised estimate from 4.9%.

For the next financial year, the fiscal deficit target has been pegged at 4.4% in line with the FY22 fiscal consolidation roadmap to bring it down to below 4.5% by FY26.