New Delhi [India], January 30 : The Government will focus on fiscal consolidation and growth in the Union Budget, says a research report by the Union Bank of India.
The report says government will aim to reduce the fiscal deficit to 4.5 per cent of Gross Domestic Product (GDP) in the Financial Year 2026 (FY26), down from an estimated 4.8 per cent in FY25.
"We expect absolute fiscal deficit to increase from RE of Rs.15.7 lakh crore to Rs.16.2 lakh crore in FY26," added the report.
The fiscal target is in line with the government's roadmap for achieving macroeconomic stability and ensuring manageable public debt dynamics.
Government is likely to remain committed to its fiscal consolidation path, with a steady reduction in the fiscal deficit over the coming years. This comes as part of a broader effort to control inflationary pressures, manage borrowing costs, and maintain investor confidence amid a slowing economy.
In FY25, the fiscal deficit has been under pressure due to lower-than-expected capital expenditure (capex) and rising subsidy burdens because of geo-political reasons.
The report highlighted that while the government's spending on infrastructure has lagged behind budgeted targets, fiscal consolidation is expected to exceed the target primarily because of the reduction in expenditure as a percentage of GDP rather than a significant pickup in revenue growth.
At 4.5 per cent of GDP, the fiscal deficit target for FY26 is considered a key step toward returning to a more sustainable fiscal path after the pandemic-driven surge in government spending.
The UBI report notes that this fiscal tightening is likely to be balanced by targeted reforms aimed at stimulating growth, such as potential tax cuts, capex boosts, and sector-specific incentives. The government's push for fiscal discipline has garnered mixed reactions, with some experts calling for more aggressive stimulus measures to support the slowing economy.
However, the report suggests that the government is likely to continue prioritising fiscal prudence, even as it balances the need for growth-boosting measures in the upcoming Union budget.
As the government prepares for the budget and the Reserve Bank of India's (RBI) monetary policy decisions in the coming weeks, the UBI report emphasises that the next steps will be critical in determining the trajectory of India's economic recovery and its ability to manage fiscal health while supporting growth.
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