As India prepares for the Union Budget of 2025-26, the finance ministry has highlighted the need for flexibility in fiscal policy, given the ongoing global economic and geopolitical challenges. While the fiscal deficit for FY26 is expected to be below 4.5% of GDP, there are concerns over the ability to accurately project receipts and expenditures in the current uncertain environment. The global situation has worsened, with escalating conflicts, further complicating fiscal planning.

The government is committed to its fiscal consolidation goal, aiming for a fiscal deficit of less than 4.5% of GDP by FY26. However, analysts forecast that the fiscal deficit for FY2025 may slightly exceed the projected Rs 16.1 lakh crore (4.9% of GDP) due to potential shortfalls in capital expenditure, which may miss the Rs 11.1 trillion target by over Rs 1 trillion. Despite healthy tax revenue growth, especially in income tax, analysts caution that global risks could affect overall fiscal performance.

The finance ministry has reported that the fiscal deficit during the first half of FY25 was the lowest in five years, amounting to only 29.4% of the budgeted target. Despite these positive trends, the ministry acknowledges the challenges ahead, including potential adverse impacts from global events.