DEBT-TO-GDP THE NEW FISCAL GUIDING LIGHT

The new approach follows sharp reduction in fiscal deficit and aims to keep debt on a declining path amid global risks

- Gireesh Chandra Prasad

India's Union budget for FY27 marks a clear shift in the Centre's fiscal framework, with the government formally moving from a focus on annual fiscal deficit reduction to a debt-to-GDP regime of budget discipline that is designed to absorb external shocks without derailing medium-term consolidation.

The new approach comes after the Centre sharply reduced its fiscal deficit from pandemic-era highs, and at a time of rising global uncertainty driven by trade disruptions, geopolitical risks and volatile capital flows.

Finance minister Nirmala Sitharaman said in her budget speech on Sunday that the central government is estimating its debt at 55.6% of nominal GDP for the next financial year. The target, she added, is to bring it down to 50% — give or take one percentage point — by FY31, as she had indicated in her previous budget.

That will be an improvement over the debt-to-GDP ratio of 56.1% estimated in the revised estimate for FY26, the minister said.

The new debt-to-GDP-anchored regime comes after the Centre brought down the fiscal deficit — the gap between revenue receipts and spending met through borrowings — from 9.2% in the pandemic year of FY21 to 4.4% in the revised estimate for FY26. In absolute terms, the fiscal deficit for FY27 at ₹16.9 trillion is higher than the ₹15.58 trillion estimated for this fiscal.