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Informist, Tuesday, Jul 23, 2024

--Fin secy: Beyond FY26, rolling targets may be on debt-to-GDP ratio 
--Fin secy:To focus on lower debt-to-GDP ratio post FY26, not fisc gap 
--Fin secy: Each yr's fisc gap call to be based on debt-to-GDP ratio 
--Fin secy: Lowering debt to GDP to give fiscal roadmap FY26 onwards
--Fin secy: Beyond FY26, fisc deficit wont be above 4.5% of GDP 

--Fin secy: Committed to lower debt-to-GDP ratio

NEW DELHI – The government's medium-term rolling targets beyond 2025-26 (Apr-Mar) may include an approach of lowering debt-to-GDP ratio every year, which will in turn give direction on fiscal consolidation for the respective financial year, Finance Secretary T.V. Somanathan said today. 

"From 2026-27 onwards, our endeavour will be to keep the fiscal deficit each year such that the Central government debt will be on a declining path as a percentage of GDP," Finance Minister Nirmala Sitharaman had said earlier in the day while presenting the Budget for 2024-25.

Currently, the government is adhering to a rolling target announced in the Budget for 2021-22 which aims at lowering the government's fiscal deficit to less than 4.5% of GDP by the end of 2025-26. For the current financial year, the government aims to lower the fiscal deficit target to 4.9% of GDP. 

"The commitment is to endeavour to reduce debt to GDP every year, that in future, is the fiscal consolidation path," Somanathan said at the post-Budget press conference today. At the 4.9% fiscal deficit target for the current financial year, the central government's debt is 56.8% of GDP, according to Budget documents. 

If the debt-to-GDP ratio has to be reduced every year, then there will necessarily be a particular amount of deficit which the government cannot exceed, Somanathan said. This will depend on prevailing growth rates, interest rates and the other parameters which will go into the calculation of the debt dynamics, he added. "(Fiscal deficit beyond 2026-27) is most likely to be a figure not above 4.5%," the finance secretary said. 

The outlook on debt-to-GDP ratio beyond 2026-27 comes against the backdrop of the government discarding the Fiscal Responsibility and Budget Management Act's mandate of a 40% central government debt-to-GDP ratio by Mar 31, 2025. The government discarded the 40% target in the wake of the COVID-19 pandemic. 

"The risk profile of the central Government's debt stands out as safe and prudent. The rollover risk in the government debt portfolio continues to be low," Statements of Fiscal Policy as required under the FRBM Act said today.  End

Reported by Priyasmita Dutta, Krity Ambey, and Sagar Sen

Edited by Akul Nishant Akhoury

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