India to move away from fiscal deficit targeting after FY26

India plans to move away from targeting a particular level of fiscal deficit after 2025-26, a senior finance ministry official said on Wednesday.

Instead, the government will use the ratio of government debt-to-GDP as the anchor for fiscal policy, T.V. Somanathan, finance secretary at the Ministry of Finance, told Reuters in an interview.

"We were moving away from this fiscal deficit targeting sort of framework, where after 2026 we will look at debt-to-GDP ratio as an anchor," Somanathan said.


Historically, India has targeted a fiscal deficit of 3% of GDP but has failed to achieve it. India's debt burden and the budget deficit ballooned during the COVID-19 pandemic but have been brought under control since then.

The federal government aims to bring down its fiscal deficit to 4.9% of GDP in the year ending March 2025 and to below 4.5% by March 2026.

India can "afford a fiscal deficit above 3% and still be fiscally sustainable because our nominal growth rates are high," Somanathan said.

Rating agencies have cited India's high debt-to-GDP as a key weight on its sovereign rating.

Fitch Ratings estimates India's debt at around 80% of GDP till 2027-28.

"The government is committed to reducing the debt as a percentage of GDP," Somanathan said. After 2025-26, the fiscal deficit targets will be set in a manner than each year will see a reduction in debt, he said.

"How fast and how far that reduction will go is something which I cannot give you a specific figure (for) today," he said.