Synopsis
India's Union Budget indicates a commitment to fiscal consolidation, projecting a reduced fiscal deficit and strong economic growth. The S&P Global Ratings report highlights government efforts to enhance domestic demand and maintain positive credit ratings despite tax reforms.Key Takeaways
- Adjusted fiscal deficit target of 4.8% for 2025.
- Fiscal target for 2026 set at 4.4%.
- Economic growth projected at 6.7% in 2025.
- Investment in infrastructure at 3.1% of GDP.
- Transition to debt-to-GDP ratio focus from 2027.
New Delhi, Feb 4 (NationPress) India’s Union Budget aligns with the expectations of steady fiscal consolidation, reinforcing a positive outlook on the country’s sovereign credit ratings, according to a report released on Tuesday.
The central government has adjusted its fiscal deficit estimate to 4.8 percent of GDP for the fiscal year ending March 31, 2025, which is slightly lower than the previous forecast of 4.9 percent stated in the Union Budget unveiled on February 1.
For fiscal year 2026, the government has established an even more ambitious deficit target of 4.4 percent, reflecting its dedication to financial discipline and sustainable growth.
Despite modifications in income tax brackets and a gradual return to normal economic activity, India is anticipated to meet these fiscal objectives, as highlighted in the S&P Global Ratings report.
The government’s fiscal position is bolstered by significant dividends from the Reserve Bank of India and effective management of capital expenditures.
Furthermore, it is expected that India’s fiscal discipline will improve with a gradual reduction in state government deficits in the upcoming years, the report indicated.
S&P Global noted that the fiscal 2026 budget is crafted to stimulate growth, primarily through enhancing domestic demand.
Tax reductions for households will enhance disposable income, while the government remains focused on investment-driven expansion and agricultural reforms.
Economic growth is projected to stay robust, with real GDP anticipated to grow by 6.7 percent in fiscal 2025 and 6.8 percent in fiscal 2026.
These projections place India ahead of numerous global counterparts facing similar economic circumstances, maintaining revenue growth despite tax modifications.
Capital investment continues to be a priority, with the government designating 3.1 percent of GDP for infrastructure and development initiatives.
This budget allocation underscores the government’s commitment to fortifying India’s economic foundation and promoting long-term growth.
As supply chain conditions improve and the forthcoming general elections conclude, the execution of infrastructure projects is expected to become increasingly efficient.
Looking forward, the government has announced that starting in fiscal 2027, it will transition its fiscal performance framework from deficit targets to a focus on the debt-to-GDP ratio.
This change aims to further enhance India’s financial stability and economic resilience.
A consistent reduction in the fiscal deficit over the next few years will bolster India’s overall fiscal flexibility and increase investor confidence.
