New fiscal consolidation roadmap: Central govt as percentage of GDP to be reduced to about 50% between FY27 to FY31

Outlining a new fiscal consolidation roadmap, the Union Budget 2025-26 has said the aim would be to keep the fiscal deficit in such a manner that the Central government debt is reduced to about 50% of the GDP by March 31, 2031.  The new roadmap has been set for the time period starting from FY27 to FY31.

“Sans any major macro-economic disruptive exogenous shock(s), and keeping in the mind potential growth trends and emergent development needs, the Government would endeavour to keep fiscal deficit in each year (from FY 2026-27 till FY 2030-31) such that the Central Government debt is on declining path to attain a debt to GDP level of about 50±1% by 31st March 2031 (the last year of the 16th Finance Commission cycle),” said the Budget documents.

The Central Government debt, based on FRBM definition, is estimated to be at 57.1% of GDP in Revised Estimates (RE) 2024-25, including the liabilities on account of investment in Special Securities of the States, under the NSSF, which are expected to be 0.9 per cent of GDP in RE 2024-25. The Central government debt net of these liabilities is about 56.2% of GDP in RE 2024-25.

The Centre is also seen to marginally do better on its fiscal deficit target for FY25 at 4.8% of the GDP, compared to 4.9% in the Budget Estimates. For FY26, the Centre has pegged the fiscal deficit at 4.4% of the GDP.

Presenting the Union Budget 2025-26 in Parliament on Saturday, Union Finance Minister Nirmala Sitharaman said the government’s endeavour will be to keep the fiscal deficit each year such that the Central government debt remains on a declining path as a percentage of the GDP. “The roadmap for the next six years has been detailed in the FRBM statement,” she said. The minister had made the announcement for a new fiscal consolidation roadmap in the Union Budget 2025-26.

The Budget document explains that the choice of debt-to-GDP ratio as the fiscal anchor is in line with current global thinking. “It encourages shift from rigid annual fiscal targets towards more transparent and operationally flexible fiscal standards,” it said, adding that it is expected that the debt-to-GDP based fiscal consolidation strategy would help rebuild buffers and provide requisite space for growth-enhancing expenditures.

The document outlines varying scenarios for achieving a lower Central government debt-to-GDP ratio of about 50% with nominal GDP growth in the range of 10%, 10.5% and 11%.  “This approach would provide requisite operational flexibility to the Government to respond to unforeseen developments,” it explained, adding that at the same time, it is expected to put Central government debt on sustainable trajectory in a transparent manner.