Budget 2026: Key Budget Terms You Should Know And Why They Matter

The Union Budget for 2026-27 is scheduled to be presented by Finance Minister Nirmala Sitharaman on Sunday, February 1. When the Budget is announced, several sets of terms are expected to dominate the headlines, with the Budget being framed under tight fiscal conditions. You might think that several of these terms are too technical and only matter to market experts or economists, but they might impact you more than you think.

Terms like fiscal deficit, capital expenditure, debt-to-GDP ratio, or nominal GDP growth may decide how costly your home loans will be and how much tax cuts the government can afford. These terms also determine the affordability of the government to spend on public infrastructure such as roads, healthcare, and jobs.

Here is a simple guide to what these terms mean and how they could shape the Budget for 2026.

Fiscal Deficit

Fiscal deficit is the gap between the government’s spending and its earnings in a year. This does not include borrowing by the government during the year. The spending of the government includes its expenses in government programmes and building infrastructure. The earnings for the government include the direct and indirect tax collections made during the year. For the government, a higher fiscal deficit will mean more borrowing to offset the gap. In case borrowing increases for the government, bond yields will also rise, making it more expensive for the government to pay off the loans and adding to future debt for the government.

India has pegged the fiscal deficit for FY26 at 4.4 per cent, but if tax collections are weaker, this target could be missed. For FY27, the government aims to bring the fiscal deficit closer to 4 per cent. Achieving this target could be difficult without difficult trade-offs.

Revenue Deficit

Revenue deficit measures whether the routine income of the government, primarily from taxes, is enough to cover its expenses, which include salaries, pensions, subsidies and its interest payments.

In this context, if the government’s borrowing barely covers the monthly expenses, it means that there is limited scope for creating future assets and growth. The government should be able to fund its day-to-day expenses through its own income, and invest the funds raised from borrowings to create future assets.

Capital and Revenue Expenditure

Capital expenditure, or capex, is the money spent by the government on building assets that will yield a long-term value. These assets include expenditure in infrastructure, highways, hospitals, railways, etc. On the other hand, revenue expenditure of the government pays for salaries, pensions, and subsidies, which are for immediate consumption.

In 2025, the government gave two kinds of tax breaks to citizens: first, with the change in income tax slabs and then with the GST rate rationalisation. While the Centre’s net direct tax mop-up rose around 9 per cent so far in FY26, GST collections are expected to be at half of the FY26 Budget estimates. This could see pressure on capital expenditure, especially as corporate capex remains weak. The budgeted capex for FY26 is at Rs. 10.8 lakh crore.

Primary Deficit

The primary deficit of the government is similar to the fiscal deficit but excludes the interest payments on past borrowings. This helps in understanding how much more borrowing is required to maintain the government’s current spending and investments. In the FY26 Budget, the primary deficit target was 0.8 per cent of gross domestic product (GDP). This indicates that most borrowing for the government goes into spending on capital instead of servicing old debt.

Nominal GDP

Nominal GDP growth measures how much the economy is growing, including the inflation in the country. Meanwhile, real GDP growth measures the growth after adjusting for inflation.

The government plans the Budget using the nominal GDP as a metric since taxes collected by the government are based on the actual price and income, which include volatility in prices due to inflation.

Nominal GDP growth has slowed down to 8 per cent, lower than 10.1 per cent estimated in the FY26 Budget, while the real GDP growth is expected to grow at 7.4 per cent in FY26.

Debt-to-GDP ratio

This ratio measures the extent of the government’s total debt compared to the size of the economy. If the debt-to-GDP ratio rises, it translates to increased interest costs, a limited budget kitty, and a more shock-prone economy.

India has committed to bringing down the debt-to-GDP ratio to around 50 per cent by FY31. This is also an important metric in improving the country’s credit ratings and part of the roadmap towards the Viksit Bharat goals by 2047.