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Informist, Friday, Feb. 27, 2026

NEW DELHI – A lower estimate of nominal GDP in absolute terms under the new data series released by the statistics ministry Friday has slightly complicated the government's fiscal consolidation roadmap. Based on the latest data, India's fiscal deficit for 2025-26 (Apr-Mar) is now seen at 4.5% of GDP, 11 basis points higher than 4.4% projected in the Budget. This is because India's nominal GDP for FY26 is seen expanding to INR 345.47 trillion under the new series, lower than INR 357.14 trillion assumed earlier.

The government has projected FY26 fiscal deficit at INR 15.585 trillion in absolute terms. In other words, if the government wants to meet the 4.4% fiscal deficit target, it will have to cut the deficit by another INR 384.32 billion in absolute terms. 

The Ministry of Statistics and Programme Implementation on Friday released the new GDP series data with FY23 as the base year, replacing FY12. This was the first major overhaul of the country's national accounts in over a decade. An outdated base year was a key criticism of India's national accounts by the International Monetary Fund. The last time India overhauled its GDP series was in 2015 when the base year was changed to FY12 from FY05.

As such, fiscal deficit for the current financial year is now seen at 4.51%, breaching the end goal of the fiscal consolidation roadmap assumed in FY22 Budget by a hair. The government had in FY22 Budget laid down a path to cut fiscal deficit to less than 4.5% of GDP by FY26. 

In the new data series released Friday, the government also revised the nominal GDP estimate for FY25, FY24, and FY23. In each of the cases, the fiscal deficit--as a percentage of GDP--has gone up due to lower nominal GDP in absolute terms. The fiscal deficit for the last three fiscals has gone up by 15 bps, 11 bps, and 25 bps, respectively, to 5.0%, 5.7%, and 6.7%. 

The Budget for FY27, presented on Feb. 1, assumed FY27 nominal GDP to grow 10% and INR 393.004 in absolute terms. Given the size of GDP shrank in earlier years, the size of GDP in FY27 is now seen at INR 380.017 trillion if we assume a 10% growth, which means, FY27 fiscal deficit--projected at INR 16.958 trillion--will translate to 4.5% of GDP, 15 bps higher than 4.3% projected in the Budget. If the government has to meet the 4.3% target, fiscal deficit will have to be cut by over INR 617 billion. 

"Nominal GDP level for FY26 is lower than what was assumed in the Budget and would need a much higher growth of above 13.7% for FY27 to align with budget assumptions," said Sakshi Gupta, principal economist at HDFC Bank.

More importantly, a lower GDP in absolute terms will have a bearing on the government's new fiscal consolidation metric--targeting debt-to-GDP ratio. FY27 will be the first year of the government's move to target debt as a percentage of GDP as the main parameter to track fiscal consolidation, instead of the fiscal deficit target that has been used in the past. The government is looking to cut its debt-to-GDP ratio to 50% by March 2031, with a band of 100 bps on either side.

The FY27 Budget estimated the debt-to-GDP ratio for FY27 at 55.6% of GDP, 50 bps lower than the estimate of 56.1% of GDP for FY26. According to Aditi Nayar, chief economist, ICRA Ltd., a lower size of GDP can push up the debt-to-GDP target for FY27 by 1.9 percentage points, "making the consolidation path unto FY31 relatively steeper than previously estimated."  

End 

Reported by Priyasmita Dutta

Edited by Akul Nishant Akhoury

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