At the Times of India Budget Dialogues 2026, one line from CP Gurnani cut through the clutter of jargon and powerpoint optimism:
“In the US they are just increasing the deficit but we are controlling it.”
It is an applause-line tailored for the current political mood – fiscally nationalist, vaguely moral, and satisfying. But if India’s Budget 2026-27 is to be understood honestly, that contrast with the United States must be unpacked, not merely cheered.
Because the truth is more uncomfortable than the slogan: India is exercising more visible fiscal restraint than most major economies – including the US – but it is doing so at a far lower income level, with far greater development gaps, and with much less room for error. This is not just a triumph; it is also a risk.
The boast and the backdrop
The context for Gurnani’s remark is clear. India’s policymakers spent the entire Budget week stressing discipline:
The Finance Minister’s speech bluntly tied policy to debt reduction: a central government debt-to-GDP target of 50±1% by 2030-31, with debt already edging down from 56.1% to 55.6% of GDP between RE 2025-26 and BE 2026-27.
She underlined that the government has kept its word:
Fiscal deficit in RE 2025-26: 4.4% of GDP (exactly the stated target).
Fiscal deficit in BE 2026-27: 4.3% of GDP.
Budget documents (Budget at a Glance) show a clear glide path from pandemic-era largesse to a new “normal” of around 4%-ish deficits, with the primary deficit pushed below 1% of GDP.
Set this against the US, whose federal deficit is running near or above 6–7% of GDP in recent years, with debt well past 100% of GDP, and the comparison looks easy: India is being “responsible”, America is being reckless.
But India is not America – either in capacity or in constraint. And that matters more than the scoreboard.
India’s consolidation: discipline, or denial?
The government’s talking points are not invented. Viewed narrowly, India’s consolidation is real and impressive:
From double-digit pandemic deficits to 4.4% and now 4.3% of GDP is a steep correction.
Capital expenditure has been raised, not cut: from about ₹2 lakh crore in 2014–15 to ₹12.2 lakh crore in FY 2026-27, with the quality of spending shifting towards "effective capital expenditure" and away from low-multiplier revenue spends.
The fiscal narratives in policy and markets have stabilised: major rating agencies and analysts broadly expect India to stick close to its targets, using non-tax revenues (especially RBI dividends), and some expenditure rationalisation as pressure valves.
In other words, the numbers show prudence with intent. India is not attempting a mindless austerity programme; it is trying to balance consolidation with growth, especially through capex.
Yet the same numbers carry a warning that political soundbites happily ignore:
Tax buoyancy is weak. As multiple analyses have noted, direct and indirect tax growth is lagging; GST rationalisation and income-tax relief are showing up in softer collections. The Budget’s math leans heavily on non-tax revenues and RBI surpluses.
Borrowing is near market tolerance. Economists warn that gross borrowing much beyond ₹15 lakh crore will make bond markets “uncomfortable”. The Budget already pegs gross market borrowing at ₹17.2 lakh crore for FY 2026-27.
Combined debt (Centre + States) is high. Estimates put total government debt around ₹300 trillion. The formal “deficit is under control” story masks that the debt stock remains heavy, and any prolonged slippage could quickly turn sentiment.
So yes, India is “controlling” the deficit – but it is doing so on a knife-edge: tight tax space, high existing debt, and heavy reliance on continued investor confidence.
That is not quite the comfortable morality tale the dialogue format encourages.
The US contrast: profligacy with privilege
If India is at one extreme – striving to show virtue under constraint – the US often appears to be at the other: shrugging as deficits balloon. From the Indian vantage point, it looks perverse:
The US runs structurally larger deficits, even in good years.
Political gridlock routinely weaponises the debt ceiling, but never really confronts the long-term arithmetic.
The Congressional Budget Office has for years warned of an unsustainable debt trajectory – yet the system muddles through.
Why is this tolerated? Because the US holds a privilege India does not: it issues the world’s primary reserve currency. The dollar’s dominance, the depth of US financial markets, and the global demand for US Treasuries give Washington the breathing room to misbehave – at least longer than other countries could without consequence.
This is the part that Gurnani’s quip gets right but incompletely: the US can “just increase the deficit” for far longer than India can, not because it is wiser, but because it is richer, more central to global finance, and backed by institutional credibility built over decades.
India, by contrast, must earn that trust year after year.
The political temptation: fetishising the deficit
There is a subtler danger in the current triumphalism around India’s fiscal stance: the risk of turning the deficit number into a ritualistic totem, detached from outcomes.
At the TOI Dialogues, multiple panels spoke of:
“Long-term vision” and Viksit Bharat 2047.
Infrastructure as the growth engine.
Middle-class relief via simplification and targeted support.
National security and capital formation.
All of that is important. But the real test, as one security panelist bluntly noted, lies in outcomes, not allocations.
By extension, the real test of fiscal prudence lies not in whether the deficit is 4.3% or 4.6%, but whether India is:
Expanding human capital fast enough: health, education, nutrition.
Closing infrastructure gaps that choke productivity.
Providing meaningful social protection without locking people into dependency.
Creating enough formal, productive jobs for a young population.
A deficit target can either protect those priorities or suffocate them, depending on how rigidly it is worshipped. India is at risk of drifting towards the latter: celebrating the control of the deficit as an achievement in itself, rather than as a means to a development end.
Where India is right – and where it is wrong
Where India deserves credit
Signalling reliability to markets. After the chaos of global pandemic spending, India has walked back towards a credible, transparent fiscal path. That steadiness keeps borrowing costs contained and supports long-term investment.
Prioritising capital over consumption. The steady ramp-up of capex, even while bringing down the deficit ratio, is one of the most quietly transformative shifts in Indian budgets in decades.
Avoiding populist excess ahead of elections. In a political culture where budgets easily become giveaways, maintaining discipline sends an important message: growth and stability, not short-term doles, are the centrepiece.
Where the danger lies
Under-investing in the “invisible” basics. It is easy to fund highways and ports; it is harder to keep pouring money into primary schools, public health systems, and municipal services that don’t cut ribbons as dramatically. A narrow fiscal narrative risks squeezing precisely these.
Playing accounting games. Heavy reliance on RBI dividends, asset monetisation, and off-budget mechanisms can maintain the appearance of discipline while shifting risk around. The more India leans on these, the more fragile the credibility of its “control” becomes.
Crowding out private investment quietly. When combined central and state borrowing devours most domestic financial savings, the private sector is implicitly pushed towards external or costlier capital. That may not explode immediately, but it erodes competitiveness over time.
The false comfort of comparison
The easiest way to feel good about India’s position is to keep contrasting it with the US – or with other rich economies whose deficits and debts appear unhinged from prudence.
That comfort is misplaced for three reasons:
Different income levels. India, at a fraction of US per capita income, cannot afford to behave like a satiated, over-indebted superpower. Its deficits must finance catch-up development, not just entitlements and interest.
Different monetary power. The dollar’s role gives the US a kind of insurance policy in global markets. The rupee does not enjoy that status. India must earn its stability; it cannot assume it.
Different demographic clocks. India’s young population could be a dividend – or a disaster – depending on public investment in skills and jobs today. Excessive fiscal tightness in the name of virtue could undercut precisely the investments that make that demographic advantage real.
So while the line “we are controlling it” plays well on stage, India must resist the urge to define success primarily against others’ failures.
The only meaningful benchmark for India’s deficit is whether it accelerates or hinders its journey to becoming a genuinely developed, inclusive, resilient economy by mid-century.
What a genuinely responsible stance would look like
If India wants to own the narrative of fiscal responsibility – not just vis-à-vis the US, but in substance – the path ahead should be clearer and less slogan-driven:
Anchor policy in a debt target, not a deficit obsession. The Budget speech points in this direction with the 50±1% debt-to-GDP goal. That must become the main lodestar. Within that, year-to-year deficits can flex in response to shocks and growth needs.
Protect core development spending – even if it means temporary slippage. In a downturn, or when external shocks hit, India should be willing to let the deficit rise to protect capex and essential social sectors, rather than cutting where it hurts long-run growth.
Strengthen the tax base, not just squeeze expenditure.
Simplify and stabilise GST.
Focus on compliance, digitisation, and formalisation, not constant tinkering with rates.
Avoid a race-to-the-bottom that erodes direct tax capacity.
Be honest about the limits of RBI and non-tax crutches. Central bank dividends and one-off asset sales can smooth tough years, but they cannot substitute for structurally sound revenues.
Treat transparency as non-negotiable. Off-budget liabilities, guarantees, and creative accounting are not signs of prudence; they are signs of denial. India’s claim to responsibility must rest on clean books, not clever footnotes.
The editorial verdict
The TOI Budget Dialogues 2026 captured a telling moment in India’s economic story: a country that has, without question, shown more fiscal self-control than many of its richer peers, and rightly seeks recognition for that.
But India should beware the moral vanity of that comparison.
The United States can indulge its deficits longer than is wise because it is rich, central, and systemically crucial. India cannot – not yet. To boast that “they are increasing the deficit, we are controlling it” is to misread both the nature of America’s privilege and the depth of India’s own developmental backlog.
India’s task is harder and more important than simply keeping the deficit lower than Washington’s. It is to deploy every borrowed rupee in ways that expand future capacity, productivity and opportunity – while keeping the debt burden within honest, transparent bounds.
If that balance is struck, history will not remember whether the fiscal deficit in 2026-27 was 4.3% or 4.5%. It will remember whether these were the years India used fiscal prudence to graduate from aspiring power to genuinely developed nation – not by preaching virtue from a podium, but by investing in the foundations of prosperity that no slogan can substitute for.
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