Debt-to-GDP may go up by 140 bps in FY27

The rebasing of India’s GDP to a 2022-23 base year has resulted in a smaller nominal GDP size, potentially pushing the Centre’s debt-to-GDP ratio to 57% in FY27.

Written by Prasanta Sahu

February 28, 2026 01:49 IST

India’s New GDP Base Series Casts Shadow on Fiscal Roadmap

With the nominal GDP size shrinking for FY23–FY26 in the new series using the 2022–23 base, the Centre’s debt-to-GDP ratio will likely rise by 1.4 percentage points to 57% in FY27, compared with the budget target of 55.6%, making the debt consolidation plan challenging.

Similarly, the smaller nominal GDP size could also make the fiscal deficit 10 basis points higher at 4.5% in FY26 and 4.4% of GDP in FY27, compared with the budget targets of 4.4% and 4.3%, respectively. This estimate is based on the government’s latest forecast of 11% nominal GDP growth in FY27 under the new series, against the 10% estimated in the old series. The impact on the fiscal deficit could be neutralised if revenues improve or expenditure is contained.

In fact, the debt-to-GDP ratio and fiscal deficit numbers as a share of GDP may undergo upward revision for the FY23 to FY25 period as well.

Nominal Shrinkage

The revised national accounts series shows nominal GDP levels consistently lower than those in the old series across FY23–FY26. For FY23, GDP is estimated at Rs 261.2 lakh crore, versus Rs 268.9 lakh crore in the old series, a downward revision of Rs 7.73 lakh crore. The reduction in GDP size for FY24 is larger at Rs 11.4 lakh crore, with GDP placed at Rs 289.8 lakh crore. In FY25, the gap widens to Rs 12.6 lakh crore. For FY26, the difference stands at Rs 11.7 lakh crore, with GDP at Rs 345.5 lakh crore.

The Centre 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 FY27.

In the Budget for 2025, the Centre committed to calibrating annual fiscal deficits in a manner that ensures a steady downward trajectory in the debt ratio, to reach around 50% of GDP, plus or minus one percentage point, by March 31, 2031.

Steeper Climb to 2031

Assuming 10% nominal GDP growth in the next financial year, rating agency Icra said the lower GDP size would affect the debt consolidation roadmap, with the debt-to-GDP ratio pegged 1.9 percentage points higher at 57.5% for FY27 against the budgeted target of 55.6%, making the consolidation path until FY31 relatively steeper than previously estimated.

This article was first uploaded on February twenty-eight, twenty twenty-six, at forty-nine minutes past one in the night.