Budget 2025: FM Sitharaman continues on fiscal consolidation path, cuts fiscal deficit target for FY26 to 4.4%

Finance Minister Nirmala Sitharaman, while delivering her Budget speech today, signalled that the government will continue on the path of fiscal consolidation with fiscal deficit target for FY26 pegged at 4.4 per cent of GDP as against 4.8 per cent in FY25. During her previous Budget speech, the finance minister had talked about the government’s commitment to reduce the fiscal deficit to 4.5 per cent of the GDP or lower by FY26. 

However, the government may need to ramp up spending on capital expenditure to support a sagging domestic economy. The cut in fiscal deficit will also boost foreign investors’ confidence in Indian government finances and improve chances of a sovereign rating upgrade.

The government will borrow Rs 14.82 trillion ($171.26 billion) from the market to fund the deficit, compared with Rs 14.01 trillion in the current year.

“To finance the fiscal deficit, the net market borrowings from dated securities are estimated at Rs11.54 lakh crore. The balance financing is expected to come from small savings and other sources. The gross market borrowings are estimated at Rs 14.82 lakh crore,” Nirmala Sitharaman said.

Manoranjan Sharma, Chief Economist, Infomerics Ratings, said, “Entirely in line with our expectations, the fiscal deficit number for FY25 has come in at 4.8 per cent – below the budgeted level of 4.9 per cent- and for FY 26 at 4.4 per cent. This is greatly welcome for the domestic macroeconomy and will send the right message to global investors, multilateral institutions and the global rating agencies.”

Mayank Arora, Director, Nangia Andersen LLP, said, “Fiscal deficit target for FY 25-26 pegged at 4.4%. This proposes a smooth glide-slope for achieving FRBM targets by the FM and would help fiscal consolidation helping stabilize INR, control inflation and provide head-room to the RBI to reduce interest rates, ultimately sustaining growth.”

The bonus dividend announced from the Reserve Bank of India of Rs 2.1 lakh crore, along with muted spending that helped keep the deficit in check despite lower-than-expected growth, can help the government meet FY25 target. 

During her Budget speech, the finance minister said that the focus of the Union Budget is to accelerate growth, inclusive development and boosting middle class spending to enhance the spending power of the middle class.