New Delhi: Finance Minister Nirmala Sitharaman on Thursday said the Centre’s capital expenditure push since Covid has boosted the private sector’s confidence in the Indian economy, encouraging them to take risks and invest.
Stating that all countries need to have public debt for managing their finances, Sitharaman said there should be a conscious effort to ensure that states borrow only as much money for asset creation as they can service and not leave the debt for the next generation to repay.
“It’s the public expenditure that we kept undertaking all these years, with a lot of confidence that the Indian economy will benefit from it, has actually helped the private sector come forward. They are now taking risks and investing so that they can benefit from the growth that India is seeing,” Sitharaman said at the C D Deshmukh Lecture 2026.
The FY27 Budget has increased capital expenditure to Rs 12.22 lakh crore, up substantially from Rs 3.39 lakh crore in FY20.
“With all confidence, I can say that this approach — that when you borrow money, you borrow it for creating assets and spend it for asset creation — has its reward, both for you and for the larger public,” Sitharaman said.
In the Budget for 2024-25, Sitharaman first announced that FY27 onwards, the government will endeavour to “keep the fiscal deficit each year such that the central government debt will be on a declining path as a percentage of GDP”.
Consequently, in the FY27 Budget, the government estimated the debt-to-GDP ratio for the current fiscal year at 55.6 per cent of GDP, lower than 56.1 per cent of GDP for FY26. The government is looking to cut its debt-to-GDP ratio to 50 per cent by March 2031.
The government has projected the fiscal deficit at 4.3 per cent of GDP or Rs 16.96 lakh crore for FY27.
The fiscal deficit target for FY27 will, however, be 4.5 per cent of GDP, based on the downward revision in India’s nominal GDP in the new series with FY23 as the base year.
The Centre has set a gross borrowing target of Rs 16.09 lakh crore for FY27, and a net borrowing of Rs 11.73 lakh crore after repaying past loans and borrowing through treasury bills.
“You need to have debt. But you need to apply your mind before you take a call on how much you borrow, when do you borrow, and for what purpose you borrow,” Sitharaman said.
She said many states have come to the Centre with the proposal to restructure their debts and lower their interest burden.
“As long as states realise that debt is otherwise not a thing that you can engage and forget about it, you have to be answerable and you cannot leave debt, yes you will borrow, but explain why you are borrowing and you cannot leave the debt unattended. You have to keep priming it,” the minister said.
She said states will have to be strong and states have to be helped, but laggard states will have to be pulled up.
“It cannot be that some states can do well and some others can remain where they are. We have to give them every handholding. You also need a Centre which has the resource to take care of the defence of this country, which takes care of having a policy which will enable exports, manufacturing. It cannot be left to the states… You need to have a Centre to get your investments, policies right,” Sitharaman said.
