Ahead of the Union Budget 2026, NDTV Profit brings you a series of explainers on all the terms you need to catch up with, to stay abreast with all developments.
1. What is fiscal deficit?
Fiscal deficit refers to the gap between the government’s total expenditure and its total receipts excluding borrowings in a financial year. Simply put, it shows how much the government needs to borrow to meet its spending needs. For instance, if the Centre spends Rs 50 lakh crore in a year but earns Rs 35 lakh crore through taxes and other income, the fiscal deficit stands at Rs 15 lakh crore.
2. Why does fiscal deficit matter in the Union Budget?
Fiscal deficit is one of the most closely tracked numbers in the Union Budget because it reflects the government’s approach to fiscal discipline. A lower deficit signals tighter control over finances and boosts investor confidence, while a higher deficit implies increased borrowing, which can push up interest rates and crowd out private investment. It also determines how much headroom the government has for spending on infrastructure, welfare schemes and defence.
3. How does the government finance the fiscal deficit?
The fiscal deficit is largely financed through borrowing. This includes issuing government securities in the domestic market, tapping small savings and provident funds, and limited external borrowings. Higher borrowing today leads to a larger interest burden in future Budgets, reducing the room for productive spending.
4. Is a high fiscal deficit always a bad thing?
A high fiscal deficit is not necessarily negative, especially during periods of economic slowdown, global uncertainty or extraordinary events such as a pandemic. Higher government spending in such phases can support growth and stabilise the economy. However, persistently high deficits can raise public debt levels, strain future Budgets and add pressure on inflation and interest rates, which is why governments usually outline a medium-term fiscal consolidation roadmap.
5. What should investors and citizens watch for in the Budget?
Key aspects to watch include the revised fiscal deficit estimate for the current year versus the Budget target, the deficit target for the next financial year as a share of GDP, and the assumptions on tax collections, disinvestment receipts and economic growth. Markets typically respond positively when the Budget balances growth support with credible fiscal discipline.
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