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Informist, Thursday, Aug. 6, 2026

 

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--Sitharaman: Believe laggard states must be pulled up
--CONTEXT: Sitharaman speaking at India Policy Forum 2026 organised by NCAER
--Sitharaman: Progress being made on further tariff rationalisation
--Sitharaman: More tariff rationalisation by FY28 Budget
--Sitharaman: Need to have debt, but mindful debt
--Sitharaman: Private sector has started taking risk, putting money
--Sitharaman: Capex helped pvt sector to come in, take risks, drive growth
--Sitharaman: Revenues must be ramped up each year to bring down debt
--Sitharaman: Support borrowing that helps create public assets

 

NEW DELHI – There is a need to have public debt and no country can run on its own resources, Finance Minister Nirmala Sitharaman said Thursday, adding that she supports borrowing money to create public assets. "You borrow money and spend it for asset creation, it has its reward – both for you (the government) and the larger public, so borrowing to that extent I will support," Sitharaman said at the National Council of Applied Economic Research's India Policy Forum 2026 event.

 

While borrowing is important, she said public debt must be mindful. "You will have to apply your mind before you take a call on how much you borrow, when do you borrow, and for what purpose do you borrow," she said. Each time any government borrows, it must ensure that it is not borrowing to service its debt, she said.

 

According to Sitharaman, governments have to be conscious "in not making that borrowing a burden for generations" to come. "Equally as much as you borrow, your revenues will have to be ramped up each year so that the debt burden that is hanging on you should be progressively brought down," the finance minister said.

 

She said the government's newly adopted metric to track the debt-to-GDP ratio, rather than targeting a particular fiscal deficit level, will help keep public debt under control. "We cannot be borrowing and not accounting for how much is our debt, why is it our debt, this way or that way," she said.

 

In the Budget for the financial year 2024-25 (Apr-Mar) Sitharaman had announced that from FY27 onwards, the government will endeavour to "keep the fiscal deficit each year such that the central government debt will be on a declining path as a percentage of GDP". Consequently, in the Budget for FY27, the government estimated the debt-to-GDP ratio for the current fiscal at 55.6% of GDP, 50 basis points lower than the estimate of 56.1% of GDP for FY26. As part of the rolling target, the government is looking to cut its debt-to-GDP ratio to 50%, plus or minus 100 bps, by March 2031.

 

Corresponding to the debt-to-GDP ratio for FY27, the government projected the fiscal deficit at 4.3% of GDP. The Union Budget had pegged the fiscal deficit for FY27 at 4.3% of GDP, or INR 16.96 trillion. The fiscal deficit target for FY27 will, however, be 4.5% of GDP, based on the downward revision in India's nominal GDP in the new series with FY23 as the base year.

 

The Centre has set a gross borrowing target of INR 16.09 trillion for FY27, which will mean a borrowing of INR 11.73 trillion net of repayments of past loans and borrowing through treasury bills, which are short-term instruments with maturity of up to one year.

 

According to Sitharaman, the Centre has used its public borrowing, despite all the criticism, to fund capital expenditure which will drive long-term growth. The Narendra Modi-led government has pushed the accelerator hard on capital expenditure to drive growth. The Budget for FY27 projected the government's capital expenditure at INR 12.21 trillion, up over six times compared to the capital expenditure in FY15.

 

The government has increased its capital spending manifold hoping that it will crowd in private investments. For the past few years, the private sector's capital spending has not matched the government's expectations despite various concessions. However, it has picked up, according to the finance minister.

 

"The private sector has come forward, and I would think it's the public expenditure that we kept doing all these years with a lot of confidence that the Indian economy will benefit from it, has actually helped the private sector to come forward," she said. "...and they are now taking risks and putting money so that they can benefit from this growth that India is seeing." 

 

Sitharaman's philosophy of "mindful" borrowing extends to the states. A rise in debt implies a growing interest payment burden and a higher debt servicing burden reduces states' flexibility to incur revenue and capital expenditure. According to a report by PRS Legislative Research, between FY17 and FY25, states' interest payments as a percentage of revenue receipts increased to 11.8% from 10.9%.

 

The finance minister said many states have shown an improvement in their fiscal discipline and adopted prudent policies that keep the debt burden in check. At an aggregate level, general government debt is important considering India's weak fiscal metrics and debt affordability have time and again been flagged as a key hindrance to a sovereign rating upgrade.

 

Sitharaman said she believes in the success of fiscal federalism and, as part of that, empowering states is also a necessity. On the one hand, laggard states must be told straight up that they are performing inefficiently. On the other, backward states must be supported. "It cannot be that some states can do well and some others can remain where they are," she said. "We have to give them every hand over their head to get them to do well."

 

Separately, the finance minister said the government is continuing to work on rationalising tariff lines and by the Budget for FY28, it may go down further. The government has been reviewing the customs rate structure since July 2024. In the Budget for FY26, the government had removed seven customs tariff rates for industrial goods, over and above the seven tariff rates removed in the Budget for FY24. "That's continuing, and we'll keep it up," she said.  End

 

Reported by Priyasmita Dutta and Sagar Sen

Edited by Rajeev Pai

 

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