Finance Minister Nirmala Sitharaman on Monday said the country has the fiscal space to support sectors impacted by the West Asia war, attributing the comfort to “decade-old fiscal prudence.” The minister also described the evolving economic challenges arising from the escalating conflict as something “moving beyond a regional concern to a systemic risk.”
Speaking at an event organised by the National Institute of Public Finance and Policy (NIPFP) here, she said sound public finance management strengthens the counter-cyclical capacity of fiscal policy, enabling governments to “lean against the wind” during downturns. In contrast with India, several countries burdened with high debt and persistent deficits are now left with limited options, forced to choose between austerity and instability, she noted.
“On the contrary, India has fiscal space — room to maintain our capex programme, room for the RBIto cut rates, room to offer targeted support to affected sectors,” the minister said. “This is the dividend of a decade of fiscal discipline. This is the strategic value of fiscal prudence that pays dividends across decades.”
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Highlighting recent policy actions, she said the government has been able to cut excise duties on petrol and diesel, extend exemptions on critical petrochemical products, and permit special economic zones (SEZs) to operate in the domestic tariff area to ease supply-side pressures.
Debt-to-GDP ratio
The country’s general government debt-to-GDP ratio, including states, is estimated at around 81%, among the lowest for large economies after Germany, she highlighted.
More significantly, India is the only major economy where the International Monetary Fund projects a meaningful decline in this ratio to 75.8% by 2030, even as debt levels in advanced economies such as the United States, China and Germany are expected to worsen, she said.
She also noted that India’s external debt-to-GDP ratio remains low at 19.1% as of September 2025, while foreign exchange reserves of over $688 billion as of end-March 2026 provide an import cover of about 11 months, offering a strong buffer against external shocks.
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The finance minister said these outcomes are the result of deliberate and sustained policy choices, often involving difficult trade-offs, rather than incidental gains. She credited stable leadership and consistent policy direction for enabling what she described as a structural transformation in public finance over the past decade.
Sitharaman on government’s fiscal approach
Sitharaman said the government has shifted the fiscal approach from consumption-led deficits to investment-led consolidation, with a clear emphasis on improving the quality of expenditure. Capital expenditure has risen sharply from 1.6% of GDP in 2014-15 to 3.1% in 2026-27, with effective capital expenditure estimated at 4.4% of GDP.
In absolute terms, this translates into an increase from nearly Rs 2 lakh crore to Rs 12.22 lakh crore, delivering significant multiplier effects for the economy.
She added that reforms in budget execution, including the adoption of ‘just-in-time’ fund releases and wider use of the Public Financial Management System (PFMS), have improved efficiency. States have also increasingly adopted the SNA SPARSH model, helping streamline fund flows and reduce borrowing costs.
Placing the current situation in a global context, Sitharaman said the past year has underscored the importance of fiscal discipline. Trade fragmentation in 2025 disrupted global supply chains and led to downward revisions in growth forecasts, although India’s outlook remained relatively resilient.
However, she cautioned that 2026 presents a more complex challenge, as the global environment shifts from episodic shocks to what she termed “permanent volatility.” The intensifying Middle East conflict threatens global energy flows and is contributing to the emergence of a more fragmented, multipolar world order.
Invoking the concept of VUCA—volatility, uncertainty, complexity and ambiguity—she said the term has gained renewed relevance in recent years. With global public debt estimated at about $106 trillion, or over 95% of global GDP, many advanced economies now face severely constrained policy space at a time when flexibility is most needed. |
