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Informist, Thursday, Jan. 29, 2026

 

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--EconSurvey: Govt fiscal trajectory stands out amid elevated global debt
--EconSurvey: Govt on track to meet FY26 fiscal deficit target of 4.4% of GDP
--EconSurvey: States' debt, deficit trend underline need for fisc calibration
--EconSurvey: Disbursed INR 836 bln as capex loans to states till Jan 4
--EconSurvey: New FRBM aim may be considered at end of 16th fin panel period
--EconSurvey: General govt expected to remain on consolidation trajectory
 

 

NEW DELHI – The Centre's fiscal trajectory, combining consolidation with sustained public investment, stands out amidst a backdrop of elevated global debt and strained fiscal space in several countries, the Economic Survey for 2025-26 (Apr-Mar) said Thursday. Fiscal resilience also comes amid elevated expenditure pressures and uncertainty around revenue streams, reflecting "deliberate and sustained policy effort rather than a natural and easy progression", the survey presented in Parliament said. As the central government continues fiscal consolidation over the medium term, the general government debt, including that of the states and the Centre, is expected to remain on a consolidation trajectory, it said.

 

"It is noteworthy that the government was determined to and succeeded in bringing down the fiscal deficit ratio as promised, despite it not being a legislative target, even while improving the quality of fiscal expenditure with a concurrent emphasis on capital expenditure," the survey, authored by a team led by Chief Economic Adviser V. Anantha Nageswaran, said. "Among other things, the conservative and prudent approach to fiscal management, which enhanced fiscal credibility, led to India's sovereign rating upgrades by several credit rating agencies in FY26," it added. 

 

The government has projected a fiscal deficit of 4.4% of GDP in FY26, marking the last leg of consolidation under the current fiscal deficit-targeting roadmap before it shifts to a different metric of fiscal discipline. The Centre has announced that from FY27, it will target the debt-to-GDP ratio. "The choice of the debt-to-GDP ratio as the fiscal anchor was consistent with global thinking. It was also considered a more reliable measure of the government's fiscal performance, as it captures the cumulative effect of past and current fiscal decisions," according to the survey.

 

The FY26 budget document said the government aims to keep its fiscal deficit at a level each year so that central government debt will be on a declining path as a percentage of GDP. Its target for fiscal consolidation is the Centre's debt at 50% of GDP, plus or minus 1%, by FY31. Government debt is projected to reach 56.1% of GDP at the end of FY26.

 

Many economists flagged that a debt-to-GDP glide path is not adequate to ensure fiscal discipline, and that the Budget must lay down a concrete fiscal deficit path, in line with the Fiscal Responsibility and Budget Management framework. The survey argued that, while "prima facie appropriate", in the highly uncertain global environment, it is important to "retain greater policy freedom" and to commit to targets that the government can deliver on. 

 

"Since the FRBM Act was first enacted in 2003, the 3% (fiscal deficit) target has been achieved only once. This eroded India's fiscal credibility, and it has taken five years of sustained commitment to fiscal prudence post-COVID to win back the trust of financial markets and credit rating agencies. It is important to retain that trust," the survey said. The new fiscal policy framework meets the requirements. "It is a concrete commitment with a specific date. Yet it affords the government flexibility to fine-tune fiscal policy in response to emerging needs in the intervening period, in a volatile and unpredictable geopolitical and geoeconomic environment," the survey said, defending the framework. 

 

The survey suggested that once the current target of 50% plus or minus 1% is met and fiscal deficits decline gradually, a new FRBM target may be considered at the end of the 16th Finance Commission period. The 16th Finance Commission's recommendations will be tabled in Parliament on Sunday, along with the Budget for FY27. "A return to a rule-based regime will likely be credible and durable if ushered in after a period of lower global macro uncertainty and after debt and/or deficit ratios come meaningfully closer to 50% or 3% of GDP, respectively," the survey said. 

 

The commission, which submitted its report to the president on Nov. 17, is tasked with determining the formula for states' share of central taxes and grants-in-aid for five years starting FY27. The recommendations of the 16th Finance Commission will also play a critical role in shaping Centre-state fiscal relations, influencing the quantum and composition of resource transfers, and thereby affecting state-level fiscal outcomes, the survey said. It underlined the importance of states' fiscal prudence, especially from a credit rating perspective, with rating agencies focusing on general government debt rather than central debt. 

 

"Strong macroeconomic fundamentals have been reinforced by a calibrated fiscal strategy that prioritised capital expenditure while steadily consolidating deficits and debt," the survey said. 

 

To improve the quality of expenditure, the Centre has shifted its focus to capital expenditure to sustainably boost growth in the post-pandemic era. The Narendra Modi government has increased its capital expenditure allocation to INR 11.21 trillion for FY26, nearly three times what it was six years ago. State governments have also made progress in recent years in scaling up capital expenditure and strengthening their own revenue mobilisation. However, emerging trends in state-level debt and deficits "underscore the need for continued calibration", the survey said. 

 

Speaking about cash transfers, an exercise that states heavily depend on to revive consumption demand, the Economic Survey said that their rapid scale-up and persistence raise concerns about fiscal sustainability and medium-term growth, particularly when not complemented by investments in employment, skills, and human capital.

 

Higher allocations to cash transfer schemes also involve clear trade-offs. "Unless deficits widen further, additional spending will crowd out resources for critical social and physical infrastructure. But deficits cannot widen any further without causing further deterioration in the overall financial health of the state," it said. These trade-offs are reinforced by programme design, with many schemes lacking sunset clauses or periodic reviews, increasing rigidity in revenue expenditure. "As a result, capital expenditure, whose growth impact is stronger and more durable, often becomes the casualty when fiscal pressures intensify, with adverse implications for medium-term growth."

 

While the Centre's incentives have supported higher state capital outlays in recent years, sustaining growth will depend on complementary discipline within revenue expenditure, so that short-term income support does not erode the very investments on which inclusive, medium-term prosperity ultimately rests, the survey said. The government has disbursed loans worth INR 836 billion to states as 50-year, interest-free loans for capital expenditure till Jan. 4. 

On the whole, the Economic Survey noted that fiscal indicators remain on track in FY26, indicating adherence to the budgeted consolidation path. End

 

Reported by Priyasmita Dutta

Edited by Saji George Titus

 

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