BUDGET
Centre to cut debt-to-GDP ratio to 50% by FY31 vs 57.1% in FY25
This story was originally published at 13:56 IST on 1 February 2025
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NEW DELHI – The Indian government aims to lower its debt-to-GDP ratio to 50% by March 2031, with a band of 100 basis points on either side.
"Sans any major macro-economic disruptive exogenous shock(s), and while keeping in mind potential growth trends and emergent development needs, the Government would endeavour to keep fiscal deficit in each year (from FY27 till FY31) such that the Central Government debt is on declining path to attain a debt to GDP level of about 50±1% by Mar. 31, 2031," the Budget documents said on Saturday.
As per the Statements of Fiscal Policy as required under the Fiscal Responsibility and Budget Management Act, 2003, the Centre's debt-to-GDP ratio in FY26 is seen falling to 56.1% from 57.1% in FY25. Net of the liabilities on account of investment in Special Securities of States under the National Small Savings Fund, the Centre's debt-to-GDP ratio is seen declining to 55.4% in FY26 from 56.2% in the current financial year.
"This approach would provide requisite operational flexibility to the Government to respond to unforeseen developments. At the same time, it is expected to put Central Government debt on sustainable trajectory in a transparent manner," the aforementioned statement said.
For the Centre's debt-to-GDP ratio to be cut to exactly 50% by FY31 from 56.1% in FY26, the government will need to make an annual reduction of 122 basis points.
The glide path for lowering the Centre's debt-to-GDP ratio comes after Finance Minister Nirmala Sitharaman had said in the full Budget for FY25 in July that the focus of fiscal consolidation will move to the said metric from annual fiscal deficit targets starting FY27. In FY25, the central government's fiscal deficit is set to decline to 4.8% of GDP, with Sitharaman on Saturday setting a target of 4.4% for FY26. This is in line with the medium-term roadmap spelt out by the government which entailed reducing the deficit to below 4.5% by FY26.
As per the Budget documents, the Centre expects to lower its debt-to-GDP ratio by 100 bps in FY26 by reducing the fiscal deficit for the next financial year by INR 5.91 billion in absolute terms to INR 15.689 trillion. End
Reported by Siddharth Upasani
Edited by Deepshikha Bhardwaj
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