Informist Poll
FY27 Budget may target 4.2% fiscal deficit, 55.1% debt-GDP
This story was originally published at 20:38 IST on 23 January 2026
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By Shubham Rana
NEW DELHI – As the government's medium-term fiscal consolidation road map concludes in the current financial year, Finance Minister Nirmala Sitharaman is likely to announce a modest reduction in fiscal deficit in the Union Budget for 2026-27 (Apr-Mar), according to an Informist poll. This Budget will also mark the shift of the government's fiscal goal post to targeting debt to GDP from fiscal deficit.
Sitharaman, who will present the Budget on Feb. 1, is expected to announce a fiscal deficit target of 4.2% of GDP for next year, according to the median of 23 economists and market participants polled by Informist. The government is also seen meeting its fiscal deficit target of 4.4% of GDP for FY26.
The finance minister had announced a medium-term fiscal consolidation road map in the FY22 Budget, under which the fiscal deficit was to be brought below 4.5% of GDP by FY26 from a record high of 9.2% of GDP in FY21, mainly due to tax revenues falling very sharply and expenses rising sharply due to the COVID-19 pandemic. The government's fiscal deficit was 4.8% of GDP in FY25.
Economists expect the government to meet the fiscal deficit target for the current year despite slower nominal GDP growth of 8% in FY26 compared with 10.1% assumed in the Budget. This is because nominal GDP in absolute terms will be INR 357.14 trillion for FY26 even with the 8% growth, which is higher than the Budget's nominal GDP assumption of INR 356.98 trillion.
"India's central government can comfortably meet its FY26 fiscal deficit goal by cutting spending amid strong real GDP growth," ANZ Bank India said in a report. "The economic outlook for FY27 and debt-targeting approach suggest there is no need to push fiscal consolidation harder, and a mildly lower fiscal deficit ratio can deliver the desired debt-to-GDP ratio."
The government is expected to target a debt-to-GDP ratio of 55.1% in the FY27 Budget, according to the Informist Poll, one percentage point lower than the 56.1% projected for FY26. The government is looking to cut its debt-to-GDP ratio to 50% by March 2031, with a band of 100 basis points on either side providing some flexibility. The ratio, estimated at 57.1% in FY25, will need to be reduced by 122 bps on average every year if the mid-point of the 49-51% range is to be met by FY31.
"This directly addresses the criticism of credit rating agencies that India's debt is too high, while offering more fiscal space to the government to manoeuvre through business cycles," Nomura, a financial services group, said in a report. "The implied fiscal deficit target for any year need not be sacrosanct. Higher nominal GDP growth or a lower interest rate burden could make up for any slippage in the fiscal deficit and still ensure the same level of public debt."
According to BofA Securities India, targeting a debt-to-GDP ratio instead of fiscal deficit would make the government's fiscal position less contractionary. This will, however, maintain fiscal sustainability, ensuring "spending rises broadly in sync with the nominal growth cycle, and not (be) a drag on economic activity," BofA Securities said in a report.
Following are the estimates for the fiscal deficit as a percentage of GDP and debt-to-GDP ratio the government may assume for FY27 in the Budget:
|
ORGANISATION |
FY27 FISCAL DEFICIT FORECAST |
FY27 DEBT TO GDP FORECAST |
|
ANZ Bank India |
4.2% |
55.2% |
|
Barclays |
4.2% |
55.0% |
|
BofA Securities India |
4.3% |
55.0% |
|
CareEdge Ratings |
4.2-4.3% |
55.6% |
|
DBS Bank |
4.3% |
55.0% |
|
Emkay Global Financial Services |
4.3% |
54.9% |
|
Goldman Sachs |
4.2% |
-- |
|
HSBC |
4.2% |
55.7% |
|
HDFC Bank |
4.2% |
55.1% |
|
ICICI Bank |
4.2% |
55.3% |
|
ICRA |
4.3% |
55.1% |
|
IDFC FIRST Bank |
4.3% |
55.0% |
|
India Ratings and Research |
4.1% |
55.5% |
|
Kotak Mahindra Bank |
4.3% |
-- |
|
Kotak Mahindra Life Insurance |
4.3% |
-- |
|
Morgan Stanley |
4.2% |
55.1% |
|
Motilal Oswal Financial Services |
4.3% |
-- |
|
Nirmal Bang Equities Pvt. Ltd. |
4.2% |
55.2% |
|
Nomura |
4.2% |
55.0% |
|
Nuvama Wealth Management Ltd. |
4.4% |
-- |
|
PNB Gilts |
4.2% |
54.0% |
|
QuantEco Research |
4.2% |
55.1% |
|
Standard Chartered Bank |
4.2% |
-- |
End
Edited by Akul Nishant Akhoury
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