Is fiscal deficit a big problem for most global economies in FY26? India vs the world – Economy News

Economic data is a crucial indicator of health check and trajectory of any economy because it provides the foundation for understanding current economic conditions, informing policy decisions by governments, allowing for risk assessment, and facilitating comparisons between different economies. Analysis of economic data is rooted in the systematic collection, interpretation, and visualization of data related to various aspects of an economy. Key economic data include GDP, unemployment rates, inflation rates, consumer spending, key interest rates, trade balances, among other things. 

Earlier on January 31, data released by the Controller General of Accounts (CGA) showed that India’s fiscal deficit for the first nine months of the current fiscal year stood at Rs 9.14 lakh crore, or 56.7 per cent on the annual estimates. The fiscal deficit widened from 55 per cent in the comparable year- earlier period. For FY26, Finance Minister Nirmala Sitharaman pegged the fiscal deficit target at 4.4 per cent, in line with its commitment to narrow the budget gap to below 4.5 per cent by 2025-26. While delivering the Union Budget, the finance minister signalled that the government will continue on the path of fiscal consolidation with the aforementioned fiscal deficit target for FY26. During her previous Budget speech, the finance minister had talked about the government’s commitment to reduce the fiscal deficit to 4.5 per cent of the GDP or lower by FY26. 

After a fall from their peak levels in the COVID affected year of 2020, a worsening in 2023 followed by some improvement in 2024, an analysis report by EY stated, general government fiscal deficit relative to GDP is expected to ease in most major economies in 2025 and 2026.  

Here is a comparative analysis of India’s fiscal deficit-to-GDP ratio projections for FY26 as against other major economies, as collated by EY with data from the Organisation for Economic Co-operation and Development (OECD):

In the US, a large structural shortfall in government revenue relative to spending is projected to persist in 2025 leading to an increase in the government’s borrowing requirement in this year. The fiscal deficit is projected to remain stable at a high level in 2026. 

In the UK, fiscal policy is projected to tighten over 2025 and 2026. However, per the report, this tightening is projected to be at a slower than expected pace due to significant fiscal loosening owing to the tax, spending, and borrowing package announced at the 2024 autumn budget. Fiscal deficit is forecasted to fall to 3.9 per cent of GDP in 2026 from 5.6 per cent in 2024.

In Germany, the fiscal stance as measured by fiscal deficit relative to GDP is expected to tighten in 2025 reflecting the impact of the recent economic stimulus package. In 2026 however, the fiscal deficit is expected to fall to 1.8 per cent.

In Japan, the fiscal deficit is projected to ease only marginally to 2.2 per cent of GDP in 2025 with the recent economic stimulus package, before tightening to 1.8 per cent in 2026.  

Among emerging economies, in China, fiscal policy became more expansionary in 2024, as the central government started issuing ultra-long maturity bonds (worth 0.8 per cent of GDP in 2024) to finance priority projects. In 2025 and 2026, however, the fiscal deficit is projected to moderate to 7.4 per cent and 6.8 per cent of GDP respectively from an estimated 7.6 per cent in 2024.

In India, the general government fiscal deficit-to-GDP ratio is projected to gradually decline, reaching 7.5 per cent in 2025 (FY26) and 7.0 per cent in 2026 (FY27). Brazil is projected to show some fiscal consolidation in 2025 and 2026. South Africa’s fiscal deficit is forecasted to expand in 2025 before easing in 2026.

Current Account Balances across economies

Now, per the OECD data, current account balances (CAB) in most of the selected major economies are projected to remain relatively stable in 2025 and 2026 compared to 2024. Among advanced economies, the ‘Economy Watch – February Edition’ by EY said, while the US and the UK show a deficit on their current account, Germany and Japan witness a surplus. CAB relative to GDP is projected to broadly improve in 2025 and 2026 in the UK and Germany, deteriorate in Japan and remain stable in the US.

The US is projected to continue showing a large current account deficit ranging between 3.7 per cent and 3.8 per cent of GDP till 2026, despite past increases in trade policy restrictions, as export growth remains relatively contained and the import intensity of demand stabilizes.  

UK’s current account deficit is expected to remain broadly stable at 2.6 per cent of GDP in 2025 and 2026, marginally lower than its level at 2.8 per cent in 2024

Amongst selected key emerging economies, China shows a surplus on its current account. This is projected to increase in 2025 and 2026 as technological upgrading and competition in the domestic markets keep exports competitive, and weak recovery of tourism imports limits total import growth.  

India’s current account deficit is estimated to be significantly low at (-)0.5 per cent of GDP in 2024 (FY25) primarily on account of falling oil import values, and strong services exports and remittances. In 2025 (FY26) and 2026 (FY27), the current account is projected to remain in a small and easily financeable deficit at 0.6 per cent and 1.0 per cent of GDP, respectively.

In Brazil and South Africa, current account deficit levels in 2025 and 2026 are projected to increase above their 2024 levels and remain close to 2.0 per cent of GDP.

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