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Despite slippage concerns, a Barclays report notes that the government is expected to meet the fiscal deficit target of 4.4% in FY25-26 and is likely to maintain a moderate target of 4.2% in FY26-27. It says the government is likely to remain committed to its medium-term fiscal consolidation path.
While pressures from higher revenue expenditure and shortfalls in receipts persist, stronger-than-expected nominal GDP growth and stable tax collections could help offset part of the stress. "We expect the Centre's fiscal deficit in FY26-27 to be pegged at 4.2% of GDP. We estimate that this would take debt-to-GDP down to 55% in FY26-27. For FY25-26, we expect the fiscal deficit target of 4.4% to be met, despite serious slippage concerns," noted the report. The report added, "At a projected fiscal deficit 4.2% of GDP for FY26-27, we estimate net borrowings at INR11.1 trn and gross borrowings at INR 16.6 trn." The economic survey released on Thursday also explained the decline in the fiscal deficit. It stated that the fiscal deficit has declined significantly from 9.2 per cent of GDP in FY21 to 4.8 per cent of GDP in FY25, according to the Provisional Accounts (PA). It is further budgeted to decline to 4.4 per cent of GDP in FY26. According to the report, the decline in the primary deficit-to-GDP ratio indicates an important structural shift in fiscal management. It stated that fresh borrowings by the central government are now increasingly being used to service past interest obligations rather than to fund current expenditure, signalling improved fiscal discipline. It stated "fresh borrowings are now increasingly being used to service past interest obligations rather than to finance current spending". In the upcoming union budget, the Centre is expected to prioritise fiscal credibility, especially amid global uncertainty and tightening financial conditions, limiting the scope for large off-budget support or populist spending. Capital expenditure is likely to remain a key policy anchor, though its pace may moderate compared to the sharp expansion seen in previous years. Continued emphasis on infrastructure-led growth is expected, even as the government balances consolidation with growth support. However, the report says there is limited scope for further consumption stimulus in the FY26-27 budget, as the government has already announced direct tax and GST cuts for 2025-26. The report also expects the upcoming budget to serve as a 'vision statement', with the main themes of 'deregulation' and 'ease of doing business', focused on creating a conducive environment for crowding in private investment and shoring up manufacturing, which has remained elusive despite previous efforts. (ANI)
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