The Union government has outlined a new fiscal architecture anchored in a gradual but sustained reduction in the debt-to-GDP ratio. Under this framework, central government debt is projected to decline to 55.6% of GDP in 2026–27, with the fiscal deficit estimated at 4.3% of GDP.
This marks a measured start to the fiscal consolidation process, shaped by existing constraints on tax revenues and the continuing need to maintain momentum in public capital expenditure. In the 2025–26 revised estimate (RE), central government debt was placed at 56.1% of GDP, while the fiscal deficit stood at 4.4% of GDP.
In the Budget for 2025–26, the Centre committed to calibrating annual fiscal deficits in a manner that ensures a steady downward trajectory in the debt ratio, aiming to reach around 50% of GDP, plus or minus one percentage point, by March 31, 2031.
Emphasising the long-term benefits of this approach, the finance minister said a declining debt-to-GDP ratio would progressively free up fiscal space for priority sector spending by lowering interest payment obligations. For FY27 Budget Estimate (BE), nominal GDP is projected to grow by 10% over the First Advance Estimates for FY2025–26.
Revenue Performance Trends
On the deficit side, the revenue deficit for FY27BE is estimated at 1.5% of GDP, unchanged from FY26RE. The gross tax revenue (GTR) to GDP ratio is projected at 11.2% in FY27, lower than 11.4% in FY26RE and 11.5% in FY25.
This moderation reflects the cuts announced in direct taxes in February 2025 and in the Goods and Services Tax in September 2025. Correspondingly, the Centre reduced its GTR target by `1.9 lakh crore to `40.8 lakh crore in FY26RE. The overall revenue receipts of the Centre, comprising net tax revenues and non-tax revenues, are estimated at `35.33 lakh crore in FY27, representing a growth of 5.7% over FY26RE.
Receipts from disinvestment and asset monetisation are projected to more than double to `80,000 crore in FY27, compared with `33,837 crore in FY26RE. The increase is primarily driven by expected proceeds from the strategic sale of IDBI Bank, estimated at `35,000–40,000 crore for the Centre.
Total expenditure in FY27 is projected at `53.47 lakh crore, equivalent to 13.6% of GDP, reflecting a growth of 7.7% over FY26. Capital expenditure is budgeted at `12.22 lakh crore, or 3.1% of GDP, including `2 lakh crore in interest-free, 50-year capital loans to states, up from `1.44 lakh crore in FY26RE. In addition, grants-in-aid for the creation of capital assets are estimated at `4.93 lakh crore, taking effective capital expenditure to `17.15 lakh crore, or 4.4% of GDP.
Revenue Expenditure Breakdown
Revenue expenditure for FY27 is projected at `41.25 lakh crore, amounting to 10.5% of GDP, marginally lower than 10.8% in FY26RE. Interest payments are estimated at `14.04 lakh crore, reflecting movements in domestic and global interest rates. Subsidies on food, fertiliser and petroleum are estimated at `4.11 lakh crore, while pension commitments are projected at `2.96 lakh crore.
Tax devolution to states is estimated at `15.26 lakh crore, including arrears, while Finance Commission grants are projected at `1.29 lakh crore, taking total resource transfers to states to `16.56 lakh crore. To finance the fiscal deficit, gross and net market borrowings through dated securities are estimated at `17.2 lakh crore and `11.73 lakh crore, respectively.
Overall, the fiscal strategy continues to prioritise tax reforms, expenditure rationalisation, inclusive infrastructure development, strengthened state capital spending, technology-driven expenditure management, and active debt management.