India’s Finance Minister Nirmala Sitharaman holds a briefcase containing the Union Budget as she poses for photographs outside the Ministry of Finance before leaving for the parliament to present the Union Budget in New Delhi, India, on Feb. 1, 2025.
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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%.
Why it’s important
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.