Union budget aims to cut fiscal deficit to 4.5% of GDP by FY26: UBI report

Fiscally, on the consolidation end, the report says, FY26 is marked by fiscal targets with growth aspects in the union budget, especially with an assessment of 4.5 percent of Gross Domestic Product (GDP) targeted for the Financial Year 2026, considering the previous expected fiscal deficit 4.8 percent of FY25.

"We expect absolute fiscal deficit to go up from Rs 15.7 lakh crore to Rs 16.2 lakh crore in FY26," it added.

This is in line with the government’s roadmap for macroeconomic stability and sustainable public debt dynamics.

Government will continue to stay on the fiscal consolidation path with a gradual reduction in fiscal deficit over the next few years. This is part of the broader strategy to manage inflationary pressures, borrowings and investor confidence in a slowing economy.

In FY25, fiscal deficit has been under stress due to lower than expected capex and rising subsidy burden due to geo-political reasons.

The report says while government’s expenditure on infrastructure is behind the budgeted numbers, fiscal consolidation is expected to exceed the target mainly because of reduction in expenditure as percentage of GDP rather than significant growth in revenue.

4.5% of GDP fiscal deficit target for FY26 is a step towards getting back to a sustainable fiscal path after the pandemic driven surge in government spending.

UBI report says this fiscal tightening will be balanced by targeted reforms to boost growth like potential tax cuts, capex boost and sector specific incentives. Government’s push for fiscal discipline has got mixed reactions, with some experts calling for more aggressive stimulus to support the slowing economy.

But government is likely to stick to fiscal prudence even as it will balance growth measures in the budget.

As the budget and RBI monetary policy is around the corner, UBI report says the next few weeks will be decisive for India’s economic recovery and fiscal health.