New Delhi, Feb 4
India’s Union Budget aligns with expectations of steady fiscal consolidation, reinforcing a positive outlook on the country’s sovereign credit ratings, according to a report released on Tuesday by S&P Global Ratings.
The central government revised its fiscal deficit estimate to 4.8% of GDP for the year ending March 31, 2025, slightly lower than the previous projection of 4.9%, as presented in the Union Budget on February 1. For fiscal 2026, the government aims for a fiscal deficit of 4.4%, reflecting a commitment to financial discipline and sustainable growth.
Key Drivers of Fiscal Stability
Despite income tax adjustments and economic normalization, India is expected to meet its fiscal targets, supported by:
- Strong dividends from the Reserve Bank of India (RBI)
- Efficient capital expenditure management
- Declining state government deficits over time
Economic Growth & Budget Priorities
According to S&P Global, the FY26 budget focuses on domestic demand stimulation through:
- Tax reductions for households, increasing disposable income
- Investment-led expansion, particularly in infrastructure and agriculture
- Capital investment allocation of 3.1% of GDP for development projects
Economic growth is projected at 6.7% in FY25 and 6.8% in FY26, positioning India ahead of global peers with similar economic conditions.
Transition to Debt-to-GDP Ratio Framework
Starting fiscal 2027, the government plans to shift its fiscal performance framework from deficit targets to a debt-to-GDP ratio, aiming for:
- Greater financial stability
- Enhanced fiscal flexibility
- Stronger investor confidence
As supply chains improve and the country becomes more stable after the elections, India is expected to speed up its infrastructure projects. This will help boost long-term economic growth.
