Centre may target fiscal deficit range of 3.7-4.3% post FY26

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₹185 trillion, or 56.8% of the GDP, during 2024-25, minister of state for finance Pankaj Chaudhary said in a written reply to the Lok Sabha on Monday. According to the International Monetary Fund, World Economic Outlook, April 2024, India's GDP at current prices has already reached $3.57 trillion in 2023-24. Experts said the Centre could look to stabilise the fiscal deficit at 4% after 2025-26, by targeting a range of 3.7%-4.3%.

“With the underlying nominal GDP growth remaining stable at about 11% per annum, this would imply a combination of 7% real growth and about 3.7% implicit price deflator (IPD)-based inflation," said D.K. Srivastava, chief policy advisor, EY India, adding that at this level of nominal GDP growth, the debt-to-GDP ratio would stabilise at about 40%, in line with the 2018 FRBM amendment. “However, the states are likely to continue to maintain a fiscal deficit-to-GDP target of 3%," added Srivastava.

“They have also not changed their fiscal deficit target in their fiscal responsibility legislations (FRLs). Accordingly, states’ debt-GDP ratio would stabilise at 30%. " According to Srivastava, the combined debt-GDP ratio of the Centre and the states would settle at 70%, in violation of the 60% target of the 2018 amendment to the Centre’s FRBM.

“The combined fiscal deficit-to-GDP ratio would be maintained annually at 7% rather than 6%," he said. The Fiscal Responsibility and Budget Management (FRBM) Act, 2003 is an Act of the Parliament of India to institutionalise financial discipline, reduce India's fiscal deficit, improve macroeconomic management and the overall management of public funds by moving towards a balanced budget and strengthen fiscal prudence. The 2018 amendment to the FRBM Act incorporated