Govt’s debt-to-GDP ratio at 58.2% in FY26, 210 bps above target of 56.1% | Economy & Policy News

The government’s debt-to-gross domestic product (GDP) ratio for 2025-26 (FY26) stood at 58.2 per cent, Minister of State for Finance Pankaj Chaudhary informed Parliament on Monday. The ratio was 210 basis points (bps) higher than the government’s aim to maintain it at 56.1 per cent for the year.

“The fiscal deficit of the central government has declined from 9.2 per cent of GDP in 2020-21 to 4.4 per cent in 2025-26 (provisional actuals), while the union government’s total outstanding liabilities have moderated from 61.5 per cent of GDP in 2020-21 to 58.2 per cent in 2025-26,” Chaudhary said in a written response to a question in the Lok Sabha.

The government missed its debt target for FY26 following a downward revision in nominal GDP after the introduction of the new series with FY23 as the base year. The government would have to cut its debt-to-GDP ratio by 260 bps in the current financial year to meet the Budget Estimate (BE) of 55.6 per cent for FY27.

In the current financial year, the government is counting on the buffer from the Rs 1 trillion Economic Stabilisation Fund to manage its fiscal space, according to Chaudhary. The finance ministry had set up the fund in March this year.

“Fiscal buffers, including the newly constituted Economic Stabilisation Fund, will provide the fiscal space to effectively respond to global headwinds and unforeseen events with significant fiscal implications,” the minister said in response to another question in the Lower House.

“The government follows a coordinated, multi-pronged approach to safeguard fiscal stability, exports and investment flows against external geopolitical uncertainties,” Chaudhary added.

The comment comes at a time when the government is staring at tight fiscal space amid the conflict in West Asia. The Centre’s expenditure on food and fertiliser subsidies is likely to overshoot the aim, and there could be a revenue shortfall as well after special additional excise duty cuts on fuel and tax exemptions for foreign portfolio investors (FPIs).

While the data for April-June shows that the government maintained a tight grip on the fiscal deficit, limiting its expansion to 9.6 per cent year-on-year to Rs 3.10 trillion, concerns over pressure on the government’s fiscal space persist amid the West Asia conflict.

The limited increase in the deficit merely reflected the timing of tax devolution to states rather than any broad-based improvement in revenue or moderation in expenditure.