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The Economic Survey 2025-26 has argued successful favour of a hold successful strict fiscal targets for the Centre, specified arsenic those that had been acceptable nether the Fiscal Responsibility and Budget Management Act, saying the authorities presently needs flexibility to fine-tune fiscal argumentation “in effect to a “volatile and unpredictable geopolitical and geoeconomic environment”.
The Survey, authored by Chief Economic Advisor V. Anantha Nageswaran, tabled successful Parliament by Finance Minister Nirmala Sitharaman, noted that the Centre had stuck to its commitments to trim its fiscal shortage but besides cautioned States astir worsening finances brought connected by little revenues and higher expenditure, including connected currency transfers.
Economic Survey 2025-26: Follow LIVE updates, highlights connected January 29, 2026
Centre’s good fiscal performance
The Survey said that, aft spiking to 9.2% of GDP during the pandemic twelvemonth of 2020-21, the Centre’s fiscal shortage was connected people to beryllium 4.4% astatine the extremity of the existent fiscal year, successful enactment with Finance Minister Nirmala Sitharaman’s committedness to halve the FY21 fiscal shortage successful 5 years.
“It is noteworthy that the authorities was determined to and succeeded successful bringing down the fiscal shortage ratio arsenic promised, contempt it not being a legislative target, adjacent portion improving the prime of fiscal expenditure with a concurrent accent connected superior expenditure,” the Survey said.
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Need for fiscal flexibility
The FRBM Act’s fiscal shortage people of 3% of GDP by March 2020 has been repeatedly deferred by the government, and the Survey acknowledged that determination is simply a “perception” that this people and model indispensable beryllium reinstated. However, it besides went connected to reason that this mightiness not beryllium the champion approach.
“While it appears prima facie appropriate, successful the highly uncertain existent planetary environment, it is important to clasp greater argumentation state and perpetrate to targets that the authorities tin present on,” the Survey said. “Since the FRBM Act was archetypal enacted successful 2003, the 3% people has been achieved lone once.”
This, it said, eroded India’s fiscal credibility. Since then, it has taken 5 years of “sustained committedness to fiscal prudence” pursuing the COVID-19 pandemic for this spot to beryllium restored among fiscal markets and credit-rating agencies.
“It is important to clasp that trust,” the Survey emphasised.
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New model should stay for now
In her past Budget, Ms. Sitharaman had specified a caller fiscal framework, nether which the Centre would people bringing down its debt-to-GDP ratio to 50% with a 1% leeway supra and beneath by March 31, 2031. This, the Survey has argued, is the due strategy for now, and tin beryllium revisited aft this clip play is over.
“It is simply a factual committedness with a circumstantial date,” the Survey noted. “Yet it affords the authorities flexibility to fine-tune fiscal argumentation successful effect to emerging needs successful the intervening period, successful a volatile and unpredictable geopolitical and geoeconomic environment.”
It said that, erstwhile this people is met, and the fiscal shortage declines gradually, past a caller FRBM people could beryllium considered.
“A instrumentality to a rule-based authorities volition apt beryllium credible and durable if ushered successful aft a play of little planetary macro uncertainty and aft indebtedness and/or shortage ratios travel meaningfully person to 50% oregon 3% of GDP, respectively,” the Survey said.
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State finances deteriorating
While praising the Centre for its fiscal prudence, the Survey nevertheless cautioned State governments against worsening finances.
It noted that, betwixt 2018-19 and 2024-25, 18 States saw a deterioration successful their gross balances, retired of which 10 slipped into gross deficits from gross surplus, 5 saw worsening gross deficits and 3 saw falling gross surpluses.
The fig of States successful gross surplus reduced from 19 successful 2018-19 to 11 successful 2024-25, starring to an wide summation successful the corporate gross shortage of States to 0.7% from 0.1% of GDP implicit this clip period.
It added that, betwixt 2023-24 and 2024-25, the gross shortage accrued by 40 ground points crossed each States.
“A cardinal operator of this renewed fiscal accent has been lagging gross maturation comparative to nominal GDP growth, compounded by the incurring of expenditures specified arsenic discretionary unconditional currency transfers,” the Survey noted.
