India’s Fiscal Deficit to Shrink on Robust Tax Revenues: World Bank
India is on track to reduce its fiscal deficit consistently, driven by a surge in tax revenues, according to the latest World Bank report. This marks a significant achievement for the country, positioning it as a standout in South Asia, where most nations face fiscal challenges.
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Strong Tax Revenues Drive Fiscal Consolidation
India’s fiscal deficit is forecasted to shrink continuously due to rising tax revenues. The World Bank attributes this to the government’s strategic reforms aimed at improving compliance and broadening the tax base. This fiscal discipline strengthens India’s financial stability and enhances investor confidence.
Debt-to-GDP Ratio: A Gradual Improvement
India’s debt-to-GDP ratio, though high, is projected to decline gradually. The report highlights that this improvement reflects sustained fiscal consolidation efforts, but high borrowing costs continue to weigh on debt servicing.
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Inflation Stabilizes as Exchange Rates Steady
Inflation in India is expected to moderate further, remaining within the Reserve Bank of India’s target range. Stabilizing exchange rates have provided a cushion against external economic shocks, bolstering domestic economic confidence.
India: The Fastest-Growing Major Economy
The World Bank projects India’s GDP growth at 6.7% for FY2025-26 and FY2026-27, making it the fastest-growing economy among major nations. The services sector remains a major growth driver, while manufacturing is strengthening with government-backed initiatives such as improved logistics infrastructure and tax reforms.
Private Consumption and Investment Fuel Growth
Private consumption in India is set to increase, supported by an improving labor market, expanding credit access, and declining inflation. Investment growth is also expected to remain robust, driven by rising private sector participation and favorable financing conditions.
India’s Economic Resilience Stands Out
India’s ability to manage its fiscal and economic priorities effectively has set it apart from other South Asian countries. While regional deficits remain tight due to high interest payments and infrastructure spending, India’s economic resilience is reinforced by structural reforms and sustained growth momentum. India is the only country in the region with a shrinking fiscal deficit and a robust outlook for economic growth.
Conclusion
India’s fiscal trajectory underscores its strong economic fundamentals and effective policy measures. With shrinking deficits, stabilizing inflation, and steady investment growth, the nation is poised to maintain its leadership among global economies.
Also Read: India's Fiscal Deficit Likely Pegged at 4.5% of GDP for FY26, ₹11 Lakh Crore Capex Proposed: ICRA