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Informist, Wednesday, Feb. 4, 2026

 

Please click here to read all liners published on this story

--Expenditure secy: States should be fine without revenue deficit grants
--CONTEXT: Comments by Expenditure secy Vualnam in an interview to Informist
--Expenditure secy: Debt-to-GDP now our guiding indicator, will stick to it
--Expenditure secy: Will manage fiscal deficit as per debt-to-GDP glide path
--Expenditure secy: To discuss state discom issues with power ministry
--Expenditure secy: Private sector capex now showing signs of pickup
 

 

By Priyasmita Dutta and Sagar Sen

 

NEW DELHI – The Centre will continue with fiscal consolidation based on targeting debt-to-GDP without committing to lowering the fiscal deficit to 3.5% of GDP by 2030-31 (Apr-Mar) as recommended by the 16th Finance Commission, Expenditure Secretary Vumlunmang Vualnam told Informist in an interview Wednesday. "We cannot suddenly change our stance. We have only announced targeting debt-to-GDP last year," he said. 

 

The 16th Finance Commission has recommended that the Centre must lower its fiscal deficit to 3.5% of GDP and states must lower it to 3% of GSDP by FY31. While the Centre "in-principle" accepted the recommendation for states, it said "Union government fiscal deficit (recommendation) will be examined separately." The commission's recommendations were presented to Parliament and made public Sunday.

 

"...we have our criteria where the debt-to-GDP is now our guiding indicator, and we are sticking to that. And for that, the kind of fiscal deficit management that is required, we will do," the expenditure secretary said. 

 

The 3.5% recommendation would have been easier to adopt, but from Apr. 1 the Centre will move to targeting the debt-to-GDP ratio each year and peg the fiscal deficit as a number corresponding to it, instead of separately targeting the deficit alone. Under the new metric to track fiscal consolidation, the Centre's target is to bring its debt-to-GDP to less than 50% by FY31, plus or minus 100 basis points on either side. It has not given any glide path for fiscal deficit. 

 

Vualnam also said the government will continue its capital expenditure push for as long as public finance's role in infrastructure creation is required. "Because private capex, which is also improving now, will not be an exact substitute for what public finance for capital expenditure is doing. So, it'll continue, and we are there to support," he said. 

 

The Narendra Modi government has increased its capital expenditure by over six times since FY15. The Union Budget on Sunday projected the central government's capital expenditure for FY27 at INR 12.21 trillion, up 11.5% on year. While the government is continuing with its capex push, experts are curious whether it has been successful in spurring private capex cycle. 

 

"My assessment is it will continue for some more time, and we have the fiscal situation to be able to support it," Vualnam said. "And private capex, which they will basically use for their industrial infrastructure, is now showing signs of pick-up."  

 

Below are edited excerpts from the interview:

 

Q. The government has noted the 16th Finance Commission's observation that states have 'significant scope of increasing revenues and rationalising expenditure'. In this regard, the Budget did not provide any revenue deficit grants to states. Does it not pose a challenge to North-Eastern states in particular, or even other states like Kerala and West Bengal?

A. The Finance Commission went through a very detailed analysis. All the states had a very formal and structured opportunity to interact with the Finance Commission. They submitted the memorandum, and lots of other data, (and there were) formal meetings with the chief ministers, with all the senior officers.

 

The 15th Finance Commission has also recommended INR 2.94 trillion in a tapering model and in the current year, it comes down to about INR 130 billion. Which means, if we were to extend that graph, FY27 anyway, we would be very close to zero. So, in that way, what the 16th Finance Commission has concluded is in line with the 15th Finance Commission. So, states should be okay.

 

Q. The central government has accepted the 16th Finance Commission's recommendation of a fiscal deficit at 3% of GSDP for states, but then it will separately examine the 3.5% for the Centre. Why so?
A. The 3% fiscal deficit for states, being the open market borrowing limit, was there in the past also. It is not a reduction in the percentage. The same percentage is monitored by the government of India because of Article 293(3), and the finance commission has not suppressed it or reduced it. It stays there.

 

On the fiscal deficit for government of India, we have our criteria where the debt-to-GDP is now our guiding indicator, and we are sticking to that. And for that, the kind of fiscal deficit management that is required, we will do. We cannot suddenly change our stance. We have only announced targeting debt-to-GDP last year. 

 

Q. States were earlier allowed to borrow an additional 0.5% tied to power sector reforms. Even that has been removed...

A. States are reforming their power distribution companies. I would like to believe that they will keep on doing it. Regarding the 0.5?ditional borrowing incentive which was given, we will discuss with the Ministry of Power. We will discuss here with the Finance Minister what is to be done. It is also a fact that out of 28 states, less than half could only avail that. But whether that is a reason to discontinue or a reason to continue, we will discuss it. It is a separate exercise.

 

Q. The Finance Commission has identified that privatisation of power distribution companies is a good step to take...

A.  Yes, from the preliminary reading, privatised power distribution companies tend to have better performance. But it has many ramifications. So, the Ministry of Power will examine it and we will be there to support it.

 

Q. There was some conversation about a new avatar of the Revamped Distribution Sector Scheme. Is it still on the table? Would you also like to bring back Ujwal DISCOM Assurance Yojana?

A. There is nothing specific as yet, but as I already said, the Ministry of Power has been working on strengthening power distribution companies. All these are also part of that, and they will analyse the impact of all those, about how useful they were. And we are here to support whatever they propose and bring up.

Q. How much will be the impact of the 8th Pay Commission recommendation rollout, if it is implemented retrospectively?

A. It is still very early days. Usually, by precedence, it is a 10-year cycle. So, from that point of view, the starting point for the 10-year cycle under the Pay Commission recommendation, is Jan. 1, 2026, but it is not mandated anywhere. So, we will see.

 

Q. The government has been fuelling growth with high capital expenditure, especially in the post-pandemic period. When will be the right time for the private sector to pick up the baton and support this capex cycle?

A. Post pandemic, yes, but even if the pandemic had not happened, infrastructure development is something that we require. It will happen as long as the public finance role in infrastructure creation is required. Because private capex, which is also improving now, will not be an exact substitute for what public finance for capital expenditure is doing. So, it'll continue, and we are there to support.

 

My assessment is it will continue for some more time, and we have the fiscal situation to be able to support. In the ongoing infrastructure development, the private sector is also involved. In financing, there are public-private partnerships; in construction, the private sector is involved.

 

And private capex, which they will basically use for their industrial infrastructure, is now showing signs of pick-up.

 

Q. While public spending is crucial for our economy, revenues have become tepid because of the tax reliefs given in 2025. In that context, what is giving the government the comfort of reaching the 50?bt-to-GDP ratio by the end of FY31? 

A. One, we are optimistic about the economy and growth. Second, whatever numbers and assumptions on which we have done our calculations are all realistic assumptions. We have not gone overboard to try and present some rosy picture. So that gives us the confidence that we will be able to meet and continue in a very progressive way.  End

 

Edited by Tanima Banerjee

 

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