News Brief
India Targets Fiscal Deficit Of 4.5 Per Cent By FY26, Focus On Quality Spending And Social Security In Budget 2025: Finance Ministry Report
Nirmala Sitharaman, Finance Minister of India
The government has reiterated its commitment to achieving fiscal consolidation while ensuring quality public spending and strengthening the social security net. A Finance Ministry document has outlined plans to reduce the fiscal deficit to 4.5 per cent of Gross Domestic Product (GDP) by Financial Year (FY)26, in line with the glide path announced in the Budget for FY21-22.
Finance Minister Nirmala Sitharaman will present the Union Budget for 2025-26 on 1 February 2025, a crucial exercise in the backdrop of global uncertainties and domestic economic challenges.
Strengthening Macroeconomic Fundamentals
In its half-yearly review tabled in the Lok Sabha, the Finance Ministry emphasized that “the thrust will be on improving the quality of public spending while at the same time strengthening the social security net for the poor and needy.” This dual approach is expected to bolster India’s macroeconomic fundamentals and maintain financial stability amidst global turbulence.
Despite external challenges, including ongoing wars in Europe and the Middle East, India’s sound economic policies have helped it remain one of the fastest-growing economies globally.
However, the ministry cautioned that risks to growth persist, necessitating sustained efforts to strengthen fiscal health and economic resilience.
Expenditure Trends: Balancing Revenue and Capital Outlays
The Budget for 2024-25 estimated total expenditure at Rs 48.21 lakh crore, comprising Rs 37.09 lakh crore on the revenue account and Rs 11.11 lakh crore on the capital account.
Of this, Rs 21.11 lakh crore—43.8 per cent of the total—was spent in the first half of FY25 (H1).
Capital expenditure remains a priority, with effective Capex, including grants for capital assets, projected at Rs 15.02 lakh crore.
This reflects the government’s focus on long-term infrastructure development and economic growth, even as it addresses immediate needs through revenue expenditure.
On the revenue front, Gross Tax Revenue (GTR) was estimated at Rs 38.40 lakh crore for FY25, implying a tax-to-GDP ratio of 11.8 per cent. Non-debt receipts were projected at Rs 32.07 lakh crore, comprising:
Rs 25.83 lakh crore in net tax revenue to the Centre,
Rs 5.46 lakh crore in non-tax revenue, and
Rs 0.78 lakh crore from miscellaneous capital receipts.
The fiscal deficit for FY25 was pegged at Rs 16.13 lakh crore, or 4.9% of GDP. In H1 of FY25, the deficit stood at Rs 4.75 lakh crore, representing 29.4 per cent of the Budget Estimate (BE).
Financing The Deficit
To finance the fiscal deficit, the government plans to raise Rs 11.13 lakh crore through market borrowings, including Government Securities (G-Secs) and Treasury Bills.
The remaining Rs 5 lakh crore will be mobilized through other sources such as the National Small Savings Fund (NSSF), State Provident Fund, external debt, and drawdown of cash balances.
This diversified approach to deficit financing underscores the government’s commitment to maintaining fiscal discipline while ensuring adequate funding for growth and welfare programs.
By focusing on quality spending, enhancing the social security net, and adhering to fiscal targets, the government aims to navigate these challenges while maintaining its status as one of the fastest-growing major economies in the world.
