Budget 2026: Government pegs fiscal deficit a tad lower at 4.3% of GDP for FY27

Continuing on the path of fiscal consolidation, Finance Minister Nirmala Sitharaman on Sunday (February 1, 2026) pegged fiscal deficit at 4.3% of GDP for the next fiscal as against 4.4% for the financial year ending March 2026.

“Government has been delivering on our fiscal commitments consistently without compromising on social needs. To strive towards accepted standards of fiscal management, in Budget 2025-26, I had indicated that the Central Government would target reaching a debt-to-GDP ratio of 50±1% by 2030-31,” she said while announcing Budget 2026-27 in the Lok Sabha.

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In line with this, she said, the debt-to-GDP ratio is estimated to be 55.6% of GDP in Budget Estimate (BE) 2026-27, compared to 56.1% of GDP in Revised Estimate (RE) 2025-26.

A declining debt-to-GDP ratio will gradually free up resources for priority sector expenditure by reducing the outgo on interest payments, she said.

Observing that one of the main operational instruments for debt targeting is the fiscal deficit, she said, “I am happy to inform this august House that I have fulfilled my commitment made in FY 2021-22 to reduce fiscal deficit below 4.5% of GDP by 2025-26. In RE 2025-26, the fiscal deficit has been estimated at par with the BE of 2025-26 at 4.4% of GDP.”

In line with the new fiscal prudence path of debt consolidation, she said, the fiscal deficit in BE 2026-27 is estimated to be 4.3% of GDP.

Fiscal deficit in absolute terms works out to be ₹16,95,768 crore for FY27.

The general government debt-to-GDP ratio was 85% in 2024, which included central government debt of 57%. The government is committed to keep fiscal deficit in each year (from FY 2026-27 till FY 2030-31) such that the central government debt is on a declining path to attain a debt-to-GDP level of about 50±1% by March 31, 2031, from the current level of 55.6%.

A fiscal deficit of 3-4% is considered comfortable and a desirable target for a growing, developing economy like India, aiming to balance economic expansion with financial stability.

To finance the fiscal deficit, she said, the net market borrowings from dated securities are estimated at ₹11.7 lakh crore.

“The balance financing is expected to come from small savings and other sources. The gross market borrowings are estimated at ₹17.2 lakh crore,” she said.