The government is well on track to meet the fiscal deficit target of 4.4 per cent of GDP estimated for the current financial year based on broad trends, the Economic Survey 2025-26 tabled in Parliament on Thursday said.
According to the survey prepared by Chief Economic Advisor V Anantha Nageswaran and team, the central government's fiscal trajectory stands out for combining consolidation with sustained public investment, earning three sovereign rating upgrades this year.
Between FY20 and FY25 (Provisional Actual), the share of capital spending in the total central government expenditure increased from about 12.5 per cent to 22.6 per cent, while effective capex as a share of GDP rose from roughly 2.6 per cent to 4 per cent, the survey said.
Even as states are overshooting their revenue deficit, the central government, through its Special Assistance to States for Capital Expenditure/Investment (SASCI), has successfully incentivised states to maintain capital expenditure at around 2.4 per cent of GDP, it said, adding the expansion of unconditional cash transfers across several states has contributed to rising revenue expenditure, with implications for fiscal space and public investment at the state level.
"Based on the broad trends observed during the year, the central government remains well on track to achieve its envisaged fiscal consolidation path, aiming to attain a fiscal deficit target of 4.4 per cent of GDP in FY26," it said.
As of November 2025, the Union government's fiscal deficit stood at 62.3 per cent of the Budget Estimates, it said.
Observing that markets have acknowledged and rewarded the government's commitment to fiscal discipline through lower sovereign bond yields, with the spread over US bonds declining by more than half, the survey said that, alongside a lower repo rate, these declining yields, which serve as benchmarks for borrowing costs across the economy, will themselves act as a fiscal stimulus.
Credit ratings agency S&P Ratings has acknowledged the credibility of and the commitment to the fiscal glide path, while upgrading India’s rating from ‘BBB-’ to ‘BBB’, it pointed out.
CareEdge Global, in initiating its coverage of India, also assigned a ‘BBB+’ rating, underscoring its robust economic performance and fiscal discipline, it added.
It is to be noted that the government overachieved its fiscal deficit target of 4.8 per cent against 4.9 per cent of GDP pegged for FY25.
The fiscal deficit declined from a high of 9.2 per cent of GDP in FY21 to 4.8 per cent of GDP in FY25 and is budgeted at 4.4 per cent of GDP in FY26.
Over the same period, the survey said, the revenue deficit as a proportion of GDP has narrowed steadily, reaching its lowest level since FY09, thereby leaving a greater allocation for capex and reflecting a sustained improvement in the quality of expenditure.