CONSOLIDATION PACE MODERATES

DEBT-TO-GDP TO BE CUT BY 50 BPs, FISCAL DEFICIT 1 BPs IN FY27, ENSURING STRONG BUDGETARY CONTROL

- PRASANTA SAHU

THE UNION GOVERNMENT has outlined a new fiscal architecture anchored in a gradual but sustained reduction in the debt-to-GDP ratio. Under this framework, central government debt is projected to decline to 55.6% of GDP in 2026-27, with the fiscal deficit estimated at 4.3% of GDP.

This marks a measured start to the fiscal consolidation process, shaped by existing constraints on tax revenues and the continuing need to maintain momentum in public capital expenditure. In the 2025-26 revised estimate (RE), central government debt was placed at 56.1% of GDP, while the fiscal deficit stood at 4.4% of GDP.

In the Budget for 2025-26, the Centre committed to calibrating annual fiscal deficits in a manner that ensures a steady downward trajectory in the debt ratio, aiming to reach around 50% of GDP, plus or minus one percentage point, by March 31, 2031.

Emphasising the long-term benefits of this approach, the finance minister said a declining debt-to-GDP ratio would progressively free up fiscal space for priority sector spending by lowering interest payment obligations.