Union Budget 2026: FM seeks to lower debt to fund priority sectors

The Centre aims to limit the fiscal deficit to 4.3% of gross domestic product (GDP) in 2026-27 from the 4.4% in 2025-26 while the debt-to GDP ratio is estimated to be 55.6% of GDP next fiscal compared to 56.1% in 2025-26.

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




She said that she had fulfilled her commitment made in Parliament in FY 2021-22 to reduce the fiscal deficit below 4.5% of GDP by 2025-26.

Govt has stuck to the path of fiscal consolidation and the measures undertaken since 2021-22 has resulted in improvement in the fiscal deficit from 6.7% of GDP in 2021-22 to 4.4% of GDP in 2025-26 in the revised estimates.

The fiscal deficit, in the budget estimates for 2026-27 is projected to be Rs 16.96 lakh crore. This translates into a fiscal deficit to GDP ratio of 4.3% in FY 2026-27 as against 4.4% in the revised estimates for 2025-26. Similarly, the revenue deficit is estimated at 1.5% of GDP in budget estimates of 2026-27 at the same level compared to revised estimates for 2025-26, according to the fiscal policy statement.

Experts said the pace of reduction this year was small.

"While the govt continues to demonstrate its commitment to-and a lengthening track record of-fiscal consolidation, it has targeted a narrowing of the fiscal deficit by only 0.1 percentage points of GDP in fiscal year 2026-27, the smallest pace of reduction since India emerged from the pandemic. As such, the deficit remains wider than any of those incurred during the current govt's first term in office," said Christian de Guzman, senior vice president, Moody's Ratings.

Some experts also said the fiscal math was credible.

"The budget assumes nominal GDP growth at 10% (current base) for FY26-27, in line with our expectations. Revenue projection is also conservative, in our view, assuring of realistic fiscal math. If anything, we believe the balance of risk lies in over-achieving the target," Barclays said in a note.

Total receipts are budgeted to grow by 7.2% in FY26-27 (vs 10.7% FY25-26 RE) whole total expenditure is expected to increase by 7.7% (vs 6.7% in FY25-26).