Economic Survey calls for fiscal flexibility for the Centre, cautions States against worsening finances

The Economic Survey urges fiscal flexibility for the Centre while warning States about deteriorating financial conditions due to rising deficits.

The Economic Survey 2025-26 has argued in favour of a delay in strict fiscal targets for the Centre, such as those that had been set under the Fiscal Responsibility and Budget Management Act, saying the government currently needs flexibility to fine-tune fiscal policy “in response to a “volatile and unpredictable geopolitical and geoeconomic environment”.

The Survey, authored by Chief Economic Advisor V. Anantha Nageswaran, tabled in Parliament by Finance Minister Nirmala Sitharaman, noted that the Centre had stuck to its commitments to reduce its fiscal deficit but also cautioned States about worsening finances brought on by lower revenues and higher expenditure, including on cash transfers.

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The Survey said that, after spiking to 9.2% of GDP during the pandemic year of 2020-21, the Centre’s fiscal deficit was on target to be 4.4% at the end of the current financial year, in line with Finance Minister Nirmala Sitharaman’s commitment to halve the FY21 fiscal deficit in five years.

“It is noteworthy that the government was determined to and succeeded in bringing down the fiscal deficit ratio as promised, despite it not being a legislative target, even while improving the quality of fiscal expenditure with a concurrent emphasis on capital expenditure,” the Survey said.

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