Fiscal Deficit
The Indian government spends more than it collects in taxes every year, by design rather than by accident. The fiscal deficit is the gap between what a government spends and what it earns through taxes and other non-borrowed income in a year. It is usually expressed as a percentage of GDP so it can be compared fairly across years and countries.
A fiscal deficit is not automatically bad. What matters is what the borrowed money is spent on.
Borrowing to build roads, railways and other assets that raise future growth is viewed very differently from borrowing to cover routine expenses. Ratings agencies and bond markets watch the deficit closely, because a government that borrows too much for too long eventually pays more to borrow.
After the pandemic pushed the deficit above 9% of GDP, India has narrowed it steadily. The 2026 Budget set a 4.3% target for 2026-27 and shifted its main anchor to bringing government debt down as a share of GDP.