In her Union Budget 2026 speech delivered on February 1, 2026, Finance Minister Nirmala Sitharaman announced that India’s central government debt-to-GDP ratio is projected to decline to 55.6% for the financial year 2026-27 (FY27).
This marks a strategic transition in India’s fiscal policy, as the government has officially adopted the debt-to-GDP ratio as its primary fiscal anchor, moving away from the annual fiscal deficit target as the sole metric for stability.
1. The New Fiscal Anchor
The shift to a debt-to-GDP anchor aligns India with global best practices, providing a more comprehensive view of the country’s long-term solvency.
- Current Trajectory: The 55.6% estimate for FY27 is a reduction from the 56.1% estimated for the current fiscal year (FY26).
- Long-Term Goal: The government has set a target to bring the debt-to-GDP ratio down to 50% (±1%) by March 2031.
- Sustainability: A declining ratio suggests that India’s nominal GDP growth is outstripping the accumulation of new debt, improving the country’s credit profile for international rating agencies.
2. Fiscal Deficit & Borrowing Targets
To achieve this debt reduction, the Finance Minister outlined a disciplined “glide path” for government overspending and borrowing.
| Metric | FY26 (Revised) | FY27 (Budget Estimate) |
| Fiscal Deficit | 4.4% of GDP | 4.3% of GDP |
| Gross Market Borrowing | ₹14.82 Lakh Crore | ₹16.0 – ₹16.8 Lakh Crore |
| Total Budget Size | ₹49.6 Lakh Crore | ₹53.5 Lakh Crore |
3. Why the Ratio is Declining
Several factors contribute to the projected 50-basis-point drop in the debt ratio:
- Revenue Buoyancy: Net tax receipts are estimated to rise to ₹28.7 lakh crore in FY27, supported by a broader tax base and the introduction of the New Income Tax Act, 2025.
- GDP Growth: The Budget assumes a real GDP growth rate of 6.8% to 7.2%, which expands the denominator of the ratio.
- Expenditure Management: While capex was hiked to ₹12.2 lakh crore, the government is trimming pandemic-era subsidies and inefficient revenue spending.
4. Strategic Significance
The shift to a debt-based anchor is intended to provide the government with more “fiscal space” to react to global economic shocks without being bound by rigid annual deficit targets. By focusing on the total debt stock, the government aims to lower interest payments over time—which currently consume a large portion of the revenue—freeing up more funds for infrastructure and social welfare.
Conclusion: A Stabilizing Influence
The projection of a 55.6% debt-to-GDP ratio is a strong signal to global markets that India is prioritizing “fiscal prudence” over populist spending. As the 16th Finance Commission recommendations begin to take effect this year, the focus will shift toward how states align their own debt profiles with the Centre’s new 50% medium-term target.
