India’s recent Union Budget aligns with the expectations of steady fiscal consolidation, enhancing a positive outlook on the country’s sovereign credit ratings, according to a report released on Tuesday.
The central government has revised its fiscal deficit estimate to 4.8% of GDP for the year ending March 31, 2025, marginally lower than the earlier projection of 4.9% presented in the Union Budget on February 1. For fiscal 2026, the government has set an even lower deficit target of 4.4%, underscoring its commitment to financial discipline and sustainable growth.
Despite adjustments in income tax thresholds and the gradual normalization of economic growth, India is expected to meet these fiscal targets, according to the S&P Global Ratings report. The government’s financial position is bolstered by strong dividends from the Reserve Bank of India and efficient capital expenditure management.
In addition, India’s fiscal discipline is anticipated to improve as state government deficits gradually decline over the coming years, the report noted. According to S&P Global, the fiscal 2026 budget aims to stimulate growth, primarily by boosting domestic demand.
Tax reductions for households are expected to increase spending power, while the government continues to emphasize investment-led expansion and agricultural reforms. Economic growth is projected to remain robust, with real GDP expected to expand by 6.7% in fiscal 2025 and 6.8% in fiscal 2026. These figures position India ahead of many global peers with similar economic conditions, demonstrating continued revenue growth despite tax adjustments.
Capital investment remains a priority, with the government allocating 3.1% of GDP for infrastructure and development projects. This budget allocation reflects the government’s commitment to strengthening India’s economic foundation and supporting long-term growth.
As supply chain conditions improve and the upcoming general elections conclude, infrastructure execution is expected to become more efficient. Looking ahead, the government has announced that starting fiscal 2027, it will transition its fiscal performance framework from deficit targets to the debt-to-GDP ratio. This shift aims to further strengthen India’s financial stability and economic resilience.
A steady decline in the fiscal deficit over the next few years is expected to enhance India’s overall fiscal flexibility and boost investor confidence.
