Centre shifts fiscal focus to debt-GDP ratio, sets 50% target by 2031 in new policy rule
New Delhi: The Union government has tweaked its fiscal policy framework, moving away from fiscal deficit as the primary anchor to a debt-GDP ratio target of around 50% by 2031.
The shift marks a key change from the Fiscal Responsibility and Budget Management Act, 2003, which set a fiscal deficit-GDP ratio as the main policy target and recommended a debt-GDP ratio of 40%.
Under what economists call “sound finance rules,” the government typically aims to meet a borrowing target. India has largely followed this approach since FRBM’s implementation. But two modifications have been introduced in the last year.
First, the debt-GDP ratio has replaced the fiscal deficit-GDP ratio as the primary policy target in the new rule. Second, the government now aims for a higher debt-GDP ratio of about 50%, compared to the 40% suggested under FRBM, with 2031 as the deadline.
The new framework gives the Centre room to sustain a higher level of debt relative to GDP, signaling a more flexible approach to borrowing while keeping long-term sustainability in focus.
