Govt aims fiscal consolidation, plans 4.5% deficit FY26

The government has reaffirmed its commitment to improving the quality of public spending and reducing the fiscal deficit to 4.5% of GDP by FY2025-26, according to information outlined in a finance ministry report. Union Finance Minister Nirmala Sitharaman is scheduled to present the Union Budget for FY2025-26 in Parliament on February 1, which is expected to build on the government's fiscal consolidation strategy, according to information.
The recently released finance ministry report, discussed in the Lok Sabha last week, underscores the government's commitment to reducing the fiscal deficit to below 4.5% of GDP by FY2025-26, as outlined in the FY2021-22 Budget. The report highlights plans to prioritize high-quality spending and reinforce social welfare measures to strengthen economic stability.
The fiscal policy for FY2024-25 was framed against a backdrop of global challenges, including geopolitical tensions in Europe and the Middle East. According to the official report, India’s robust macroeconomic fundamentals have shielded the economy from external disruptions, enabling growth alongside fiscal prudence. Despite these strengths, the report highlighted that risks to economic expansion persist, requiring sustained vigilance.
The total expenditure for FY2024-25 was projected at Rs 48.21 lakh crore, with Rs 37.09 lakh crore allocated for revenue expenditure and Rs 11.11 lakh crore for capital outlay. During the first half of FY25, Rs 21.11 lakh crore approximately 43.8% of the Budget Estimate had been spent, stated report. The effective capital expenditure, which includes grants for the creation of capital assets, was projected at Rs 15.02 lakh crore, underlining the government’s focus on infrastructure development.
The Gross Tax Revenue (GTR) for FY2024-25 was projected at Rs 38.40 lakh crore, reflecting a tax-to-GDP ratio of 11.8%. Non-debt receipts for the Centre were estimated at Rs 32.07 lakh crore, which included Rs 25.83 lakh crore in net tax revenue, Rs 5.46 lakh crore from non-tax sources, and Rs 0.78 lakh crore from miscellaneous capital receipts. The fiscal deficit was anticipated to reach Rs 16.13 lakh crore, or 4.9% of GDP, with Rs 4.75 lakh crore of this realized during the first half of FY25, constituting 29.4% of the annual target.
To finance the fiscal deficit, the government planned to raise Rs 11.13 lakh crore through market borrowings, including government securities and treasury bills, with the remaining Rs 5 lakh crore sourced from mechanisms such as the National Small Savings Fund (NSSF), state provident funds, external debt, and drawdowns of cash reserves, stated report.
As the government prepares the upcoming Budget, its strategy continues to emphasize fiscal discipline while strengthening social welfare initiatives. Financial experts note that, this balanced approach aims to fortify the nation's economic resilience and sustain its status as one of the fastest-growing economies globally.

(Business Correspondent)