Centre likely to meet 4.4% fiscal deficit target, but debt metrics face pressure from slower nominal GDP growth

The Centre is expected to meet its fiscal deficit target of 4.4% of GDP this fiscal year (FY26), even as nominal GDP growth slows to around 8%, below the 10.1% projected in the Union Budget. The slight upward revision in nominal GDP estimates, from just under ₹357 lakh crore to ₹357.14 lakh crore, provides some statistical relief that could help the government stay on track with its deficit target.

According to the first advance estimates released by the Ministry of Statistics and Programme Implementation (MoSPI), India’s real GDP is expected to grow at 7.4% in FY26, supported by strong performances in the services and manufacturing sectors. However, the government had assumed nominal GDP growth of 10.1% in the Budget, a target that now appears unlikely to be met. Nominal GDP represents the total monetary value of all goods and services produced in the economy without adjusting for inflation.

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While the fiscal deficit target may be achievable this year, slower nominal GDP growth is expected to put pressure on the debt-to-GDP ratio. The government had estimated this ratio at 56.1% for FY26, based on higher nominal growth, but revised figures suggest a slight slippage. This divergence could complicate the government’s medium-term fiscal consolidation plans, which had been outlined for FY27 through FY31.

The current fiscal scenario represents a delicate balancing act for the government. Managing the deficit remains feasible in the short term, but slower nominal growth could necessitate recalibration of the debt reduction roadmap in the coming years. Analysts will be closely watching the Union Budget for indications of any adjustments to the government’s fiscal strategy.

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