Union Budget 2026-27: How India's fiscal math works under the new debt rule, in charts

Subscribe to enjoy similar stories. The Union Budget 2026-27 marks a fundamental shift in India’s fiscal framework. Starting next fiscal, the government has adopted the debt-to-GDP (gross domestic product) ratio as its main fiscal anchor, marking a strategic departure from the traditional focus on fiscal deficit.

While this new framework gives the government room to increase spending during economic shocks, it intensifies the focus on revenue performance and the government’s ability in meeting its debt obligation sustainably. In the latest Budget presented today by Finance Minister Nirmala Sitharaman, the government has set its fiscal deficit at 4.3% of GDP for 2026-27, down from 4.4% of GDP in 2025-26 (revised estimate) and 4.8% in 2024-25. The latest fiscal deficit target marks a 10 basis-points reduction from the previous year.

Every Union Budget since the pandemic, the government has promised higher capital expenditure, one of the two major components of spending, and this year is no exception. The Centre has increased the allocation for capital outlay to ₹12.2 trillion, up 11.5% from ₹10.6 trillion in previous fiscal’s revised estimates. However, as a share of nominal GDP, capital expenditure, will remain flat at 3.1% of GDP, unchanged from the previous fiscal year and below the 3.2% in 2024-25.

After raising capital expenditure from 1.6% of GDP in 2018-19 to 3.4% in 2023-24, the government has chosen a more modest path for the upcoming fiscal year. Meanwhile, revenue expenditure, the other major component of spending, continues its decline as a share of GDP. The government has budgeted it at 10.5% of GDP, down from 10.8% in previous year’s revised estimates.