India targets fiscal deficit at 4.4% for 2025-26, sets path to bring down debt
The Indian government will target a narrower fiscal deficit of 4.4% of gross domestic product for fiscal year 2025-26, down from a revised 4.8% for the current year, Finance Minister Nirmala Sitharaman said in the budget on Saturday.
However, the government increased gross borrowing to 14.82 trillion rupees ($171.26 billion) from the market to fund the deficit, compared with 14.01 trillion rupees in the current year.
The narrower deficit target comes despite a rejig of personal taxes, which will lead to a loss of 1 trillion rupees in revenue.
The net market borrowing will stand at 11.54 trillion rupees, marginally lower from 11.63 trillion rupees in 2024-25.
The government, which plans to shift to debt-to-GDP as the key benchmark for fiscal policy starting 2026-27, said it would target to bring down debt to a level of 50% by March 31, 2031 from a current level of 57.1%.
A narrower budget gap signals the government's intention to remain fiscally prudent despite expectations that it should have ramped up capital expenditure to support a sagging domestic economy.
A lower fiscal deficit also boosts foreign investors' confidence in government finances and improves chances of a sovereign rating upgrade.
India's budget deficit has steadily narrowed from a peak of over 9% in 2020-21.
The switch in focus to debt-to-GDP, the government said, is in line with the current global thinking.
"It encourages shift from rigid annual fiscal targets towards more transparent and operationally flexible fiscal standards," it said.