Union Budget 2026–27: Understanding India’s Fiscal Deficit and Its Economic Impact

The 2026–27 Union Budget will be presented in February by Finance Minister Nirmala Sitharaman, and discussions are already centred on one familiar term—fiscal deficit. It simply shows whether the government is spending more than it earns, offering a quick sense of the economy’s financial health.

As Nirmala Sitharaman gets ready to deliver her ninth consecutive budget, the Modi government is placing fresh emphasis on narrowing the fiscal deficit while balancing priorities such as growth, welfare and infrastructure.

What is Fiscal Deficit?

In simple terms, a fiscal deficit comes up when the government’s expenses exceed its income. The earns most of its money from taxes, while its spending is used for salaries, subsidies, infrastructure and welfare programmes.

When government spending outpaces what it earns, the administration has no choice but to borrow — either from domestic markets or overseas lenders. These borrowings steadily add to India’s total debt, which is why the fiscal deficit becomes a closely watched number every budget season.

The deficit is usually shown as a percentage of Gross Domestic Product (GDP). For instance, if India spends ₹1,00,000 crore and earns ₹90,000 crore, the shortfall of ₹10,000 crore can also be viewed as a share of the economy. This helps people gauge whether government finances are comfortably placed or under stress.

Factors Affecting Fiscal Deficit

Several factors can influence the fiscal deficit. Slow growth or rising unemployment can push the government to increase spending in order to support the economy.

Policy decisions such as starting new infrastructure projects or launching welfare schemes without raising enough tax revenue can also widen the fiscal deficit. Global factors, including inflation and changes in trade, add more pressure and influence how much the government eventually needs to borrow.

Fiscal policy, which is how the government manages taxes and spending, has a direct effect on the fiscal deficit. When spending goes up or taxes are lowered, the deficit usually grows because the government is putting out more money than it earns.

Keeping the fiscal deficit in check is important for a stable economy. If it stays high for a long time, it can push up prices, reduce investment and lower confidence in the markets. That is why the government monitors its earnings and spending closely each year.

As the 2026–27 Union Budget approaches, the fiscal deficit is one of the key numbers to watch. It gives an idea of how the government plans to manage finances, how much borrowing may be needed, and what steps it might take to support growth and keep the economy stable.