More Stories

Informist, Saturday, Feb. 1, 2025

--Econ secy on cutting debt-to-GDP:Similar work has to be done by states too 

--Econ secy: In best case scenario, debt-to-GDP ratio could be 47.5% FY31 

--Sitharaman: Fiscal prudence is being maintained 

NEW DELHI – The government aims to lower its debt-to-GDP ratio to 50% by March 2031, with a band of 100 basis points on either side, according to the Budget for 2025-26 (Apr-Mar) presented on Saturday. The move is aligned with the government's shift to targeting lowering debt as a percentage of GDP, aligning it with metrics of rating agencies. On this, Department of Economic Affairs Secretary Ajay Seth said that the Centre was making an effort to lower the debt-to-GDP ratio, which requires states to also have their debt on a reducing path. 

Rating agencies look at the level of general government debt, which includes states and the Union. The government has been advocating that India, currently rated Baa3 by Moody's, the lowest tier of investment grade, deserves a higher rating because of its economic resilience and stable fundamentals. On the hand, Christian de Guzman, senior vice-president of Moody's Ratings, said after the Budget that India's fiscal strength would remain weaker than most of its investment-grade peers in FY26, even though the Union government remains on track to meet its near-term policy goals, as it do not expect sufficient improvement in the debt burden, or the proportion of the Budget earmarked for debt servicing.  

Seth said that similar fiscal consolidation efforts must be undertaken by state governments to ensure a coordinated and effective approach across the entire economy. "It is a process", he said at a press conference after the Budget was presented in the Lok Sabha earlier in the day.

The government's goal is to bring the debt-to-GDP ratio to 50 +/- 1% by Mar. 31, 2031, with a moderate assumption of 10-11% GDP growth. For this to be achieved, the Centre's debt-to-GDP ratio to be cut to exactly 50% by FY31, the government will need to make an annual reduction of 122 basis points.

In line with this, the economic affairs secretary also pointed out that if a high growth rate and significant fiscal consolidation is maintained, then the debt-to-GDP ratio could drop to as low as 47.5% by FY31. "Debt-to-GDP ratio will be on the declining path depending upon what the growth rate in the economies are, what kind of instrumentalist measures or further consolidation measures would be needed," Seth said. 

He stressed that the roadmap includes three different scenarios – mild, moderate, and high levels of consolidation – each of which will impact the debt-to-GDP ratio in varying degrees. A more conservative estimate, with slower growth and less aggressive consolidation, could see the ratio reach as high as 52%. The Centre's debt-to-GDP ratio in FY26 is seen falling to 56.1% from 57.1% in FY25, as per the Statements of Fiscal Policy as required under the Fiscal Responsibility and Budget Management Act, 2003.

Addressing the broader context, Finance Minister Nirmala Sitharaman in her opening remarks at the press conference reaffirmed the government's commitment to fiscal prudence. She clarified that the fiscal strategies introduced since FY21 have been maintained, keeping the country on track with the announced glide path.

"Our fiscal prudence has aligned itself with the glide path that we had announced in FY21. So, we have kept ourselves in alignment. Fiscal prudence has been maintained and the coming year estimates have also been given. Well under 4.5% (fiscal deficit) is what we had said earlier, we are also projecting the same," Sitharaman said. 

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.  End

Reported by Priyasmita Dutta and Krity Ambey

Written by Sachi Pandey

Edited by Avishek Dutta

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2025. All rights reserved.