Economic Survey 2026: Centre on track to achieve 4.4% fiscal deficit target for FY26

The central government is on track to meet the fiscal deficit target of 4.4% of GDP estimated for the current financial year, as per broad trends, the Economic Survey 2026 said on Thursday.

"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% of GDP in FY26," it said. The Union government's fiscal deficit stood at 62.3% of the Budget Estimates, as of November 2025, it added.

The Economic Survey 2025-26, tabled in the Parliament on January 29, and prepared by Chief Economic Advisor V Anantha Nageswaran and team, said that the central government's fiscal trajectory stands out for combining consolidation with sustained public investment, earning three sovereign rating upgrades this year.

From FY20 to FY25 (Provisional Actual), the share of capital spending in the total central government expenditure increased from nearly 12.5% to 22.6%, while effective capex as a share of GDP rose from around 2.6% to 4%, the survey said.

While states are overshooting their revenue deficit, the central government has successfully incentivised states to maintain capital expenditure at around 2.4% of GDP through its Special Assistance to States for Capital Expenditure/Investment (SASCI), the survey said.

It added that the expansion of unconditional cash transfers across many states has added to the rising revenue expenditure, with implications for fiscal space and public investment at the state level.

Fiscal deficit

The markets have 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 observed. It said that these declining yields, which serve as benchmarks for borrowing costs across the economy, with a lower repo rate, will themselves act as a fiscal stimulus.

Credit ratings agency S&P Ratings upgraded India’s rating from ‘BBB-’ to ‘BBB’, acknowledging the credibility of and the commitment to the fiscal glide path, it noted.

CareEdge Global, in initiating its coverage, also gave India a ‘BBB+’ rating, highlighting its robust economic performance and fiscal discipline, it added.

Notably, the government overachieved its fiscal deficit target of 4.8% against 4.9% of GDP pegged for FY25. The fiscal deficit declined from a high of 9.2% of GDP in FY21 to 4.8% of GDP in FY25, and is budgeted at 4.4% of GDP in FY26.

The revenue deficit as a proportion of GDP has narrowed gradually, the survey said, reaching its lowest level since FY09. This makes space for a greater allocation for capex, depicting a sustained improvement in the quality of expenditure, it added.