RBI Report: Union Budget Strikes Balance Between Fiscal Discipline and Growth

The Reserve Bank of India (RBI) staff has released a report stating that the Union Budget 2025-26 (FY26) effectively balances fiscal consolidation and economic growth. The Budget sets a fiscal deficit target of 4.4% of GDP, lower than the revised estimate of 4.8% for FY25. This aligns with the government’s goal of keeping the deficit below 4.5% by FY26.

Long-Term Fiscal Goals and Debt Reduction

Starting from FY27, the government plans to keep the fiscal deficit in check to reduce the public debt-to-GDP ratio. The goal is to bring this ratio down to around 50% by March 2031. For FY25, the government’s outstanding debt is expected to decline to 56% of GDP from the previous estimate of 57.1%.

Focus on Growth and Development

The Budget aims to accelerate economic growth while promoting inclusive development. Key areas of focus include boosting private sector investments, improving household confidence, and increasing the spending power of the middle class.

Tax Relief to Support Consumption and Investment

A tax relief package worth ₹1 trillion is expected to increase household disposable income. This move is likely to encourage more spending, savings, and investment, ultimately benefiting the overall economy.

Fiscal Deficit Reduction Plan

The fiscal deficit reduction to 4.4% of GDP in FY26 is planned through controlled revenue spending (11% of GDP) and maintaining capital expenditure (capex) at 3.1% of GDP. Additionally, the government aims to increase gross tax revenue to 12% of GDP to support fiscal consolidation.

Commitment to Sustainable Fiscal Policies

Looking ahead, the government has stated that it will maintain a fiscal deficit strategy that helps lower the Centre’s debt-to-GDP ratio to around 49-51% by March 2031.

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