India's central government is well-positioned to achieve its fiscal deficit target of 4.4% of GDP for FY26 despite facing revenue challenges, according to recent analysis from ANZ Research. The assessment comes as the government prepares for the upcoming Budget session amid evolving fiscal dynamics.

FY26 Fiscal Deficit Outlook

Dhiraj Nim, Economist and FX Strategist at ANZ Research, expressed confidence in the government's ability to meet its fiscal consolidation goals. In an exclusive interview with NDTV Profit on January 13, he outlined the key factors supporting this projection.

"A mildly lower fiscal deficit ratio can deliver the desired debt-to-GDP ratio. The key expectation from the upcoming Budget session is that the government would be able to meet fiscal deficit target of 4.4% of GDP for FY26," Nim stated.

The analysis indicates that strong real GDP growth will provide a favorable backdrop for fiscal management, allowing the government to maintain its consolidation path without aggressive spending cuts.

Revenue Challenges and Mitigation Strategies

Despite the positive outlook, the government faces significant revenue headwinds. Nim expects a substantial net tax shortfall due to an unexpected decline in tax buoyancy throughout the year.

"Thanks to the large central bank dividend and some expenditure rationalisation both on account of capex and non interest revenue expenditure, the government would be able to just meet its fiscal deficit target," Nim explained. This approach will be implemented without disrupting the broader borrowing program.

Non-tax revenues are expected to provide additional support, with projections suggesting they could exceed budget estimates by 0.20% of GDP. Excess central bank dividends will remain a crucial revenue source, while weak oil prices are anticipated to generate higher dividends from oil marketing companies.

FY27 Fiscal Consolidation Framework

Looking ahead to FY27, the fiscal landscape presents tighter constraints. Nim emphasizes the importance of conservative tax assumptions in budget planning for the coming fiscal year.

The FY27 fiscal deficit target represents an 'endogenous' target as the government transitions from traditional fiscal deficit targeting to a debt targeting framework. Under this new approach, the government may target debt at 55% of GDP.

"Even if the RBI dividends remain quite large, the government will have to reduce its expenditure by 20 bps of GDP to meet its fiscal deficit target which we expect to be 4.2% of GDP," the economist noted.

Strategic Fiscal Transition

The analysis suggests that India's fiscal consolidation strategy reflects a measured approach to debt management. The economic outlook for FY27 and the debt targeting methodology indicate that aggressive fiscal tightening may not be necessary to achieve desired debt sustainability metrics.

The transition to debt targeting represents a significant shift in fiscal policy framework, potentially providing greater flexibility in managing short-term fiscal variations while maintaining long-term debt sustainability objectives.

Source: https://www.ndtvprofit.com/budget/budget-2026-will-govt-meet-fy26-fiscal-deficit-target-economist-eyes-firm-capex-despite-tightness

The government has convened an all-party meeting on January 27 to discuss the legislative and other agendas ahead of the upcoming Budget Session of Parliament. Parliamentary Affairs Minister Kiren Rijiju will host the meeting at the main committee room of Parliament House annexe at 11 am.

Budget Session Timeline and Key Events

The Budget Session will commence on January 28 with President Droupadi Murmu's address to the joint sitting of Lok Sabha and Rajya Sabha. In a rare occurrence in parliamentary history, the Union Budget will be presented on February 1, which falls on a Sunday. This will mark Finance Minister Nirmala Sitharaman's ninth consecutive budget presentation.

Parliamentary Proceedings and Schedule

The Lok Sabha has provisionally allocated three days from February 2 to 4 for discussion on the Motion of Thanks on the President's Address. There will be no Zero Hour on January 28 and February 1, according to an internal circular.

Political Context and Campaigns

The Budget Session comes amid significant political activity, with the opposition Congress conducting a nationwide campaign against the Viksit Bharat-Guarantee for Rozgar and Ajeevika Mission (Gramin) Act. This new legislation replaces the UPA-era Mahatma Gandhi National Rural Employment Guarantee Act. The ruling BJP is simultaneously running a counter campaign to highlight the new legislation as reformist and necessary to address loopholes in the previous law.

Pending Legislative Agenda

Nine bills are currently pending before the Lok Sabha, awaiting parliamentary consideration. Key pending legislation includes:

• Viksit Bharat Shiksha Adhishthan Bill, 2025
• Securities Markets Code, 2025
• Constitution (One Hundred and Twenty-ninth Amendment) Bill, 2024

These bills are presently under scrutiny by Parliamentary Standing or Select Committees.

Global Economic Context

The Union Budget presentation will occur against the backdrop of global economic uncertainties, particularly with US President Donald Trump's tariffs having disrupted the international economic order. This context adds significance to the upcoming budget discussions and policy announcements.