Faced with weaker tax buoyancy that has constrained revenue growth, the government is preparing to rely more heavily on disinvestment and asset monetisation to support its fiscal consolidation path over the next two years.
Finance Minister Nirmala Sitharaman on Monday indicated that proceeds from stake sales and public offerings in central public sector enterprises (CPSEs) will play a central role in maintaining the glide path for deficit and debt reduction, especially as the fiscal impact of the 8th Pay Commission award begins to surface in FY28.
“Disinvestment should set the tone for revenue generation. Asset monetisation will also continue, and we are considering increasing public float in CPSEs,” Sitharaman said, responding to concerns about how the Centre plans to meet its debt-to-GDP reduction goals amid tax revenue pressures.
She emphasised that while non-tax avenues will be tapped more actively, efforts to expand the tax base remain a priority. “That doesn’t mean we will neglect the tax side. The revenue estimates are realistic,” she added.
FY27 Budget Estimates
The FY27 Budget Estimates project gross tax revenue growth of 8%, lower than the estimated 10% nominal GDP growth, implying tax buoyancy of less than one.
This moderation has prompted a calibrated approach to fiscal consolidation. In the Budget for 2025–26, the Centre committed to aligning annual fiscal deficits with a steady reduction in the debt ratio, targeting central government debt at around 50% of GDP, with a margin of one percentage point, by March 31, 2031.
FY27 marks the first year under the Centre’s revised fiscal framework anchored to the debt-to-GDP ratio, with the fiscal deficit serving as a key operational indicator. The deficit for FY27 is pegged at 4.3% of GDP, while central government debt is projected to decline to 55.6% of GDP.
Pace of debt reduction
The pace of debt reduction will moderate to 50 basis points in FY27, compared with a 100-basis-point decline estimated for FY26. Similarly, the improvement in the fiscal deficit will be marginal in FY27 relative to the sharper adjustment seen in the previous year, signalling a more gradual start under the new architecture.
Sitharaman said the strategic sale of IDBI Bank is progressing and that other disinvestment transactions are also in the pipeline, though the timing may vary. She stressed that borrowing is justified when it leads to asset creation and supports growth. “We are looking at bringing down the fiscal deficit. Debt is meaningful if it creates assets.
Debt management remains work in progress, and the Centre and states must work together,” she said. With growth as the immediate priority, she expressed comfort with the 4.3% deficit target for FY27.
The minister underscored that the FY27 Budget places public investment at the centre of its growth strategy, viewing capital expenditure as a driver of both demand and long-term capacity creation. The fiscal trajectory, she said, reflects a balance between supporting growth and maintaining macroeconomic stability.
On capital markets, Sitharaman defended the proposed hike in securities transaction tax (STT) on futures and options (F&O) trades, describing it as a deterrent against excessive speculation. The Budget proposes raising STT on futures contracts to 0.05% from 0.02%, and on options premium and exercise to 0.15% and 0.15%, respectively.
Citing studies by Sebi showing that over 90% of retail investors in the F&O segment incur losses, she said the move aims to discourage uninformed risk-taking. “We have only touched the highly speculative F&O segment. Many parents have reached out about severe losses faced by their children,” she noted.
Addressing gold price volatility, Sitharaman attributed recent trends to global uncertainty and rising central bank purchases of gold. This, she said, reflects waning investor confidence in any single currency and a flight to perceived safe assets.
She also confirmed that the government plans to introduce the Insolvency and Bankruptcy Code (Amendment) Bill, 2025, in the second half of the Budget session beginning March 9, following submission of the parliamentary committee’s report.