Govt plans to reduce debt-to-GDP ratio to 47.5-52% by FY31

Currently at 57.1%, Budget pegs the ratio at 56.1 per cent for FY26

- ASIT RANJAN MISHRA

As expected, Finance Minister Nirmala Sitharaman in her FY26 Budget announced a new glide path with debt-to-gross domestic product (GDP) ratio as the fiscal anchor, moving away from the current practice of targeting fiscal deficit.

The six-year road map till 2030-31 (FY31) aims to bring down debt-to-GDP ratio to a range of 47.5-52 per cent from 57.1 per cent in FY25. For FY26, the Budget pegs debt-to-GDP ratio at 56.1 per cent assuming nominal GDP growth of 10.1 per cent effectively aiming to bring it down by 1 percentage point a year.

The debt-to-GDP range for the period FY27-FY31 is based on three nominal GDP growth scenarios of 10 per cent, 10.5 per cent, and 11 per cent. For each growth scenario, there are three debtto-GDP ratio targets such as mild, moderate, and high, depending on the degrees of fiscal consolidation the government wants to target.