The Union Budget 2025-26 outlines a shift towards the 'debt-to-GDP ratio' as the fiscal anchor shifting from FY 2026-27. Discuss the rationale behind this shift.

Fiscal anchor reflects to a fiscal variable that governments target to achieve macro-economic stability Primary Deficit, Fiscal Deficit (CA % GDP), Debt/GDP ratio, Interest to Revenue Receipts Ratio Shift to debt-to-GDP ratio: Currently GoI targets Fiscal deficit as the primary anchor & debt-to-GDP ratio as secondary anchor - as per NK Singh Committee report UB: 2025-26 - GoI announced shift to debt-GDP ratio Rationale behind shift to debt-GDP ratio: - More comprehensive measure - Debt includes current & past fiscal deficits - More long-term view - targeting debt allows govt to plan for a longer horizon - More policy scope - allows govt to undertake large fiscal deficits during crises - with the aim to nurture fiscal def surplus during booms - Sustainability - debt is sustainable as long as growth rate - interest rate differential is positive - Predictability in capital markets - Investors or bond holders would know the govt's borrowing programme & react accordingly Thus, debt-to-GDP ratio would allow GoI to undertake counter-cyclical policy measures to ensure high growth/employment rate