The Union Bank of India’s research report highlights that the government will prioritize fiscal consolidation in the upcoming Union Budget, aiming to reduce the fiscal deficit to 4.5% of GDP in FY26 from an estimated 4.8% in FY25. The report projects the absolute fiscal deficit to rise from ?15.7 lakh crore in FY25 to ?16.2 lakh crore in FY26, aligning with the government’s broader strategy of ensuring macroeconomic stability and managing public debt. This effort is part of a long-term fiscal roadmap aimed at keeping borrowing costs in check and maintaining investor confidence amid economic uncertainties.
Despite fiscal pressures in FY25 due to lower-than-expected capital expenditure and rising subsidy burdens linked to geopolitical factors, the government remains committed to gradual deficit reduction. The report suggests that fiscal consolidation is being achieved more through expenditure control rather than a significant rise in revenue. Infrastructure spending has lagged behind budget estimates, but the government’s focus on fiscal prudence aims to restore stability following the pandemic-driven surge in public spending.
While the fiscal tightening plan is expected to include targeted measures to boost growth—such as tax reforms, capital expenditure increases, and sectoral incentives—some experts argue that stronger stimulus efforts may be necessary to counter economic slowdown. However, the report indicates that the government will likely maintain a cautious approach, balancing fiscal discipline with pro-growth initiatives. As the budget and the Reserve Bank of India’s upcoming policy decisions take shape, the direction of fiscal policy will be crucial in determining India’s economic recovery and long-term fiscal sustainability.
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