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Barclays: India to Meet Fiscal Deficit Target, Projects 4.2% for FY27

A Barclays report states the Indian government is expected to meet its fiscal deficit target of 4.4% for FY25-26 despite earlier slippage concerns. It projects a further reduction to 4.2% for FY26-27, which would help lower the debt-to-GDP ratio. The report notes a structural shift where new borrowings are increasingly used to service past interest, indicating improved fiscal discipline. The upcoming budget is expected to prioritize fiscal credibility and focus on deregulation to crowd in private investment.

Key Points: India's Fiscal Deficit Target on Track, Says Barclays Report

  • FY26 target of 4.4% expected to be met
  • FY27 deficit projected at 4.2% of GDP
  • Borrowings to service past debt, not new spending
  • Capex to remain key but growth may moderate
  • Budget to focus on deregulation and private investment
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Barclays sees government meeting FY26 fiscal deficit target, projects 4.2% for FY27

Barclays expects India to meet its FY26 fiscal deficit target of 4.4% and projects a 4.2% target for FY27, highlighting improved fiscal discipline.

"We expect the Centre's fiscal deficit in FY26-27 to be pegged at 4.2% of GDP. - Barclays Report"

New Delhi, January 30

Despite slippage concerns, a Barclays report notes that the government is expected to meet the fiscal deficit target of 4.4% in FY25-26 and is likely to maintain a moderate target of 4.2% in FY26-27. It says the government is likely to remain committed to its medium-term fiscal consolidation path.

While pressures from higher revenue expenditure and shortfalls in receipts persist, stronger-than-expected nominal GDP growth and stable tax collections could help offset part of the stress.

"We expect the Centre's fiscal deficit in FY26-27 to be pegged at 4.2% of GDP. We estimate that this would take debt-to-GDP down to 55% in FY26-27. For FY25-26, we expect the fiscal deficit target of 4.4% to be met, despite serious slippage concerns," noted the report.

The report added, "At a projected fiscal deficit 4.2% of GDP for FY26-27, we estimate net borrowings at INR11.1 trn and gross borrowings at INR 16.6 trn."

The economic survey released on Thursday also explained the decline in the fiscal deficit. It stated that the fiscal deficit has declined significantly from 9.2 per cent of GDP in FY21 to 4.8 per cent of GDP in FY25, according to the Provisional Accounts (PA). It is further budgeted to decline to 4.4 per cent of GDP in FY26.

According to the report, the decline in the primary deficit-to-GDP ratio indicates an important structural shift in fiscal management. It stated that fresh borrowings by the central government are now increasingly being used to service past interest obligations rather than to fund current expenditure, signalling improved fiscal discipline.

It stated "fresh borrowings are now increasingly being used to service past interest obligations rather than to finance current spending".

In the upcoming union budget, the Centre is expected to prioritise fiscal credibility, especially amid global uncertainty and tightening financial conditions, limiting the scope for large off-budget support or populist spending.

Capital expenditure is likely to remain a key policy anchor, though its pace may moderate compared to the sharp expansion seen in previous years. Continued emphasis on infrastructure-led growth is expected, even as the government balances consolidation with growth support.

However, the report says there is limited scope for further consumption stimulus in the FY26-27 budget, as the government has already announced direct tax and GST cuts for 2025-26.

The report also expects the upcoming budget to serve as a 'vision statement', with the main themes of 'deregulation' and 'ease of doing business', focused on creating a conducive environment for crowding in private investment and shoring up manufacturing, which has remained elusive despite previous efforts.

- ANI

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Reader Comments

P
Priya S
Good to see the focus on fiscal consolidation, but I have a respectful criticism. While capex on infrastructure is great, what about immediate relief for the middle class? Inflation is still pinching our pockets. A little more focus on consumption stimulus wouldn't hurt.
R
Rohit P
The target seems ambitious but achievable if tax collections remain strong. The key is whether private investment will finally pick up as they hope. 'Ease of doing business' has been a slogan for years now - need to see actual results on the ground for MSMEs.
S
Sarah B
As someone following global markets, this is a very responsible path. In a world of uncertainty, India sticking to its deficit targets will boost foreign investor confidence massively. The decline from 9.2% to 4.4% is actually impressive.
N
Nisha Z
Hope the infrastructure spending continues at a good pace. The new highways and railways are visible and create jobs. But also need to ensure funds for health and education are not compromised in the name of fiscal discipline. Balance is key.
M
Michael C
The borrowing numbers are staggering - 16.6 lakh crore gross borrowing. While the percentage to GDP is coming down, the absolute debt burden on future taxpayers is still increasing. Need a clear roadmap to bring the debt-to-GDP ratio below 50%.

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