What is the story about?
With the global economic order showing clear signs of strain, the Union Budget 2026–27 is likely to position India not just as a growth story but as a rare anchor of stability in an increasingly fragmented world.
According to SBI Research’s pre-budget assessment, the coming budget will be framed against a backdrop of eroding global trust, volatile financial markets, and intensifying geopolitical competition conditions that demand tighter fiscal discipline rather than populist excess.
The report argues that the post-Cold War framework of “US exceptionalism” is fading, with trust deficits triggering sharp corrections in equities and bonds globally. At the same time, commodities led by precious metals are witnessing renewed risk-on flows, while crude oil remains a latent threat if supply discipline breaks. In this unsettled environment, India’s macro stability and relatively strong recovery trajectory stand out.
SBI Research highlights that India’s post-pandemic recovery has been stronger than its rebound after the 2008 global financial crisis, outperforming not only lower- and middle-income peers but also even high-income economies. This divergence, the report suggests, gives policymakers greater credibility to prioritise long-term fiscal consolidation while continuing targeted public investment.
The budget is therefore expected to reinforce India’s image as a predictable, rule-based economy, an important signal at a time when investors are increasingly sensitive to fiscal slippage worldwide.
Unlike earlier post-pandemic budgets that leaned heavily on stimulus, Budget 2026–27 is expected to emphasise restraint. SBI Research projects the fiscal deficit at around 4.2 per cent of GDP in FY27, underscoring the government’s commitment to glide-path consolidation even as global growth slows and inflation risks resurface through commodities.
Nominal GDP growth is estimated at 10.5–11 per cent, but the report cautions that any downside surprise could strain tax revenues, making expenditure efficiency a central theme of the budget narrative rather than headline giveaways.
A key shift in focus this year could be the growing weight of state finances. While central government debt is gradually declining, states now account for a larger share of general government debt, with combined state liabilities still well above prudential thresholds.
SBI Research expects the budget to explicitly flag the need for medium-term, scenario-based debt paths for states, instead of reliance on annual deficit targets. This would mark a subtle but important recalibration in center-state fiscal relations, recognising that sustainable consolidation cannot be achieved without state-level discipline.
With combined Centre and state borrowings projected to remain elevated in FY27, the report warns of mounting pressure on bond markets. Net central borrowing alone is seen at Rs 11.7 lakh crore, while states may borrow over Rs 12 lakh crore gross.
In this context, SBI Research sees an expanded role for the RBI—not just as a liquidity manager but as an active stabiliser of the government borrowing programme through calibrated open market operations and potential reforms in the state development loan market.
Even within a tighter fiscal framework, capital expenditure is expected to remain the government’s primary growth lever. Central capex is projected to cross ₹12 lakh crore in FY27, reinforcing the message that consolidation will not come at the cost of infrastructure creation or medium-term growth potential.
The emphasis on capex, rather than consumption-led stimulus, is likely to be projected as evidence of policy credibility at a time when many economies are being forced into abrupt fiscal reversals.
According to SBI Research’s pre-budget assessment, the coming budget will be framed against a backdrop of eroding global trust, volatile financial markets, and intensifying geopolitical competition conditions that demand tighter fiscal discipline rather than populist excess.
The report argues that the post-Cold War framework of “US exceptionalism” is fading, with trust deficits triggering sharp corrections in equities and bonds globally. At the same time, commodities led by precious metals are witnessing renewed risk-on flows, while crude oil remains a latent threat if supply discipline breaks. In this unsettled environment, India’s macro stability and relatively strong recovery trajectory stand out.
SBI Research highlights that India’s post-pandemic recovery has been stronger than its rebound after the 2008 global financial crisis, outperforming not only lower- and middle-income peers but also even high-income economies. This divergence, the report suggests, gives policymakers greater credibility to prioritise long-term fiscal consolidation while continuing targeted public investment.
The budget is therefore expected to reinforce India’s image as a predictable, rule-based economy, an important signal at a time when investors are increasingly sensitive to fiscal slippage worldwide.
Unlike earlier post-pandemic budgets that leaned heavily on stimulus, Budget 2026–27 is expected to emphasise restraint. SBI Research projects the fiscal deficit at around 4.2 per cent of GDP in FY27, underscoring the government’s commitment to glide-path consolidation even as global growth slows and inflation risks resurface through commodities.
Nominal GDP growth is estimated at 10.5–11 per cent, but the report cautions that any downside surprise could strain tax revenues, making expenditure efficiency a central theme of the budget narrative rather than headline giveaways.
A key shift in focus this year could be the growing weight of state finances. While central government debt is gradually declining, states now account for a larger share of general government debt, with combined state liabilities still well above prudential thresholds.
SBI Research expects the budget to explicitly flag the need for medium-term, scenario-based debt paths for states, instead of reliance on annual deficit targets. This would mark a subtle but important recalibration in center-state fiscal relations, recognising that sustainable consolidation cannot be achieved without state-level discipline.
With combined Centre and state borrowings projected to remain elevated in FY27, the report warns of mounting pressure on bond markets. Net central borrowing alone is seen at Rs 11.7 lakh crore, while states may borrow over Rs 12 lakh crore gross.
In this context, SBI Research sees an expanded role for the RBI—not just as a liquidity manager but as an active stabiliser of the government borrowing programme through calibrated open market operations and potential reforms in the state development loan market.
Even within a tighter fiscal framework, capital expenditure is expected to remain the government’s primary growth lever. Central capex is projected to cross ₹12 lakh crore in FY27, reinforcing the message that consolidation will not come at the cost of infrastructure creation or medium-term growth potential.
The emphasis on capex, rather than consumption-led stimulus, is likely to be projected as evidence of policy credibility at a time when many economies are being forced into abrupt fiscal reversals.
