India's Budget Shifts Focus: Debt-to-GDP Ratio Over Fiscal Deficit

• The upcoming budget is expected to prioritize reducing the debt-to-GDP ratio, currently around 56%, over a specific fiscal deficit target.
• India has nearly completed the fiscal consolidation path outlined in the FRBM Act, making a 3-4% fiscal deficit comfortable for a growing economy.
• The revised FRBM Act set a fiscal deficit target below 4.5% of GDP for FY 2025-26, with the debt-to-GDP ratio becoming a new standard.
• Finance Minister Nirmala Sitharaman indicated a shift towards ensuring the central government's debt-to-GDP ratio remains on a declining trajectory from 2026-27.
• India's total debt reached 205 trillion rupees by FY 2024-25, with domestic and foreign debt combined representing approximately 57% of GDP.

Why It Matters: The budget will likely emphasize managing India's rising debt-to-GDP ratio over strict fiscal deficit targets.