In her previous Budget in February 2025, Ms. Sitharaman had also outlined an alternate path to fiscal consolidation by focussing on the Centre’s debt-to-GDP ratio and reducing it to 50% (with leeway of 1% above and below) by March 2031.
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The Centre’s fiscal deficit, which is broadly the amount by which its expenditure exceeds its revenue, has been set at 4.3% of Gross Domestic Product (GDP) for the financial year 2026-27, with the government targeting a debt-to-GDP ratio of 55.6%, Finance Minister Nirmala Sitharaman announced in her Budget 2026-27 speech.
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According to experts, this is a sign of a moderation in the Centre’s fiscal consolidation due, in large part, to a fall in the government’s gross tax revenue ratios.
“I am happy to inform this august House that I have fulfilled my commitment made in FY 2021-22 to reduce the fiscal deficit below 4.5% of GDP by 2025-26,” Ms. Sitharaman stated. “In line with the new fiscal prudence path of debt consolidation, the fiscal deficit in BE (budget estimates) 2026-27 is estimated to be 4.3% of GDP.”
Also read: Decoding Union Budget 2026–27 | What the numbers mean
This would entail a reduction in the fiscal deficit from 4.4% as reported in the revised estimates for the current financial year 2025-26.
Reducing debt ratios
In her previous Budget in February 2025, Ms. Sitharaman had also outlined an alternate path to fiscal consolidation by focussing on the Centre’s debt-to-GDP ratio and reducing it to 50% (with leeway of 1% above and below) by March 2031.
“In line with this, the debt-to-GDP ratio is estimated to be 55.6% of GDP in BE 2026-27, compared to 56.1% of GDP in RE (revised estimates) 2025-26,” Ms. Sitharaman said. “A declining debt-to-GDP ratio will gradually free up resources for priority sector expenditure by reducing the outgo on interest payments.”
Slower fiscal consolidation
According to D.K. Srivastava, chief policy advisor at EY India, the Centre’s fiscal consolidation has moderated in this Budget.
“After achieving a reduction of 40 basis points from 4.8% of GDP in FY25 to 4.4% in FY26 (RE), the reduction in the FY27 (BE) is only 10 basis points, taking the FY27 fiscal deficit to 4.3% of GDP,” he explained.
“This moderation is due to a fall in the Government of India’s (GoI) gross tax revenues to GDP ratio, which has progressively gone down from 11.5% in FY25 to 11.4% in FY26 (RE) and further to 11.2% in FY27 (BE) which translates into a fall in GoI’s non-debt receipts relative to GDP,” Mr. Srivastava added.
Robust revenue growth forecast
The Budget documents show that the Centre’s net tax receipts, after accounting for devolutions to the States, is budgeted at ₹28.7 lakh crore, up 7.2% over the level in the revised estimates of 2025-26. Notably, Budget 2026 does not contain any big tax cuts for salaried or corporate taxpayers.
Gross corporate tax revenue is budgeted at ₹12.3 lakh crore, 11% higher than the amount received in 2025-26 as per the revised estimates of that year. Gross income tax revenue, too, has been budgeted to grow 11.7% to ₹14.7 lakh crore over the same period.
Notably, income tax revenue as per the revised estimates of 2025-26 was 8.8% lower than what was budgeted at the start of that year.
Continued growth in capex
On the expenditure side, the Centre has budgeted a total expenditure of about ₹53.5 lakh crore for 2026-27, which is 7.7% higher than the revised estimates for 2025-26.
Within this, the Centre’s capital expenditure is budgeted to grow to ₹12.2 lakh crore, which is 11.5% higher than the revised estimates for 2025-26.
During the post-budget press conference, Ms. Sitharaman emphasised that this amounted to 4.4% of GDP, which is the highest in at least the last 10 years.
Published – February 01, 2026 02:54 pm IST
