India’s fiscal roadmap: Strong growth and stability despite tax cuts, says S&P Global

New Delhi:  India’s Union Budget aligns with the expectations of steady fiscal consolidation, reinforcing a positive outlook on the country’s sovereign credit ratings, according to a report on Tuesday.

The central government revised its fiscal deficit estimate to 4.8 per cent of GDP for the year ending March 31, 2025, slightly lower than the earlier projection of 4.9 per cent in the Union Budget presented on February 1.

For fiscal 2026, the government has set an even lower deficit target of 4.4 per cent aligning with a commitment to financial discipline and sustainable growth.

Despite adjustments in income tax thresholds and a gradual normalisation of economic growth, India is expected to achieve these fiscal targets, the S&P Global Ratings report said.

The government’s financial position is supported by strong dividends from the Reserve Bank of India and efficient capital expenditure management.

Additionally, India’s fiscal discipline is expected to improve as state government deficits gradually decline over the coming years, the report added.

According to S&P Global, the fiscal 2026 budget is designed to stimulate growth, primarily by boosting domestic demand.

Tax reductions for households will provide more spending power, while the government continues to emphasise investment-led expansion and agricultural reforms.

Economic growth is projected to remain strong, with real GDP expected to expand by 6.7 per cent in fiscal 2025 and 6.8 per cent in fiscal 2026.

These figures position India ahead of many global peers with similar economic conditions with a continued revenue growth despite tax adjustments.

Capital investment remains a priority, with the government allocating 3.1 per cent of GDP for infrastructure and development projects.

The 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 shift its fiscal performance framework from deficit targets to the debt-to-GDP ratio.

This transition is aimed at further strengthening India’s financial stability and economic resilience.

A steady decline in the fiscal deficit over the next few years will enhance India’s overall fiscal flexibility and boost investor confidence.

–IANS