Targeting public debt is suitable in the current uncertain times, says CEA Nageswaran

India's shift from targeting annual fiscal deficit to long-term debt was appropriate during a period of external economic uncertainty, chief economic advisor V. Anantha Nageswaran said on Wednesday.

“The reason the central government moved away from a deficit target every year to a public debt target is to give itself optionality in these times when there is going to be a lot of uncertainty, unexpected developments, etc.,” he said, while speaking at the CII India Edge 2025.

In the Union budget for 2025-26, finance minister Nirmala Sitharaman announced a new five-year target to cut the central government’s debt to 50% of gross domestic product (GDP), give or take 1%, by 31 March 2031.

Fiscal flexibility

Creating a rule that cannot be adhered to on an annual basis damages credibility, Nageswaran said, referring to the Fiscal Responsibility and Budget Management (FRBM) Act, under which the fiscal deficit was meant to be reduced to 3% of GDP by 2020-21. However, the covid-19 pandemic and the stimulus package pushed the deficit to 9.2% that year.

It has been brought down to 4.8% as of 2024-25, lower than the budget estimate of 4.9%, and the government has set a target of 4.4% for the current fiscal year, as announced by Sitharaman in the Union budget.

“So to tie oneself down in a straitjacket in these times is problematic,” the CEA said, at a time when the global economic scenario is volatile amid geopolitical tensions and tariff wars.

India’s fiscal deficit for the April-October period stood at ₹8.25 trillion, or 52.6% of the 2025-26 budget target, showed data released by the Controller General of Accounts (CGA) on 28 November. That compares with ₹7.51 trillion or 46.5% of the estimate in the year-ago period.

The goal is to keep fiscal deficit—the gap between revenue receipts and spending—in each year from 2026-27 to 2030-31 such that the Centre’s debt as a share of GDP comes down to 50% of GDP, give or take 1%, from 57.1% in 2024-25, provided there are no major exogenous macroeconomic shocks.

Emphasizing that fiscal flexibility is fundamental to building a resilient macroeconomy, Nageswaran said fiscal flexibility empowers governments to respond swiftly to economic shocks and crises, without rigid rules impeding action. This also helps in better signalling to the markets, thereby managing credibility issues among market participants.

Through the enactment of the FRBM Act, India had embarked on a rules-based fiscal regime, which enshrined deficit targets such as revenue deficit and fiscal deficit as a percentage of GDP, as measures for prudent fiscal management. Effective revenue deficit was added to the list of fiscal targets by amending the FRBM Act in 2012. Later, the Act was again amended in 2018 to incorporate both fiscal deficit and debt targets with an end date. The fiscal deficit of 3% of GDP was set as the target, which was to be achieved by 2020-21.

Data collection

Speaking at the event on enhanced data collection for economic estimation, Saurabh Garg, secretary, Union ministry of statistics and programme implementation said the ministry is collaborating with state governments to provide data on household consumption, employment, and inflation, at the district level, which is expected to be available starting January 2026.

This could be followed up with developing a mechanism for a credible audit of data to further improve accountability and transparency, he added.

He further said the ministry is working on the harmonization and standardization of data, both at the level of the Centre and states.