Global headwinds may push govt towards conservative fiscal path

The Union government is likely to adopt a conservative fiscal stance in the coming financial year, pegging the fiscal deficit at 4.2 percent of GDP, against the current year’s target of 4.4 percent, amid heightened geopolitical uncertainty and global economic volatility, finance ministry officials told Business Today TV.

Officials said the finance ministry, which is currently in advanced discussions on Budget estimates and in the process of collecting GDP estimates from the Central Statistical Office, is considering a modest reduction in the deficit target, factoring in global trade developments and slower-than-expected nominal growth.

“We have faced tariff-related disruptions, and while these are not an immediate concern, prudence is warranted in the current global environment,” a senior government official said.

The Reserve Bank of India has projected real GDP growth of 6.8 percent in FY26, marginally higher than 6.5 percent in FY25, while the Chief Economic Advisor has expressed optimism about a likely 7 percent growth. However, nominal GDP growth remains a key concern. While the FY26 Budget assumed 10.1 percent nominal growth, current estimates are closer to 8–8.5 percent, complicating faster fiscal consolidation.

Despite the cautious fiscal approach, the government is expected to maintain a strong focus on capital expenditure and reforms. Capex outlays in FY27 could rise by 7–10 percent, officials indicated. Economists, during recent pre-Budget consultations with the finance ministry, emphasised the need for a gradual transition towards higher private investment, rather than any abrupt scaling back of public capex.

Data from the Controller General of Accounts show that the fiscal deficit stood at Rs 9.77 lakh crore at the end of November 2025, accounting for 62.3 percent of the full-year target, compared with 52.5 percent during the same period last year.