The report said buoyant revenues could help the government keep infrastructure spending steady at around 3.1 per cent of gross domestic product, even as it works towards lowering the fiscal deficit in line with its medium-term targets.
The assessment comes as policymakers prepare the budget amid a challenging global environment marked by slowing growth, trade uncertainty, and tighter financial conditions.
ICICI Bank noted that the fiscal stance in 2025–26 was shaped by a mix of fiscal and monetary stimulus, with income tax and GST-related measures together amounting to about 0.9 per cent of GDP. While these steps helped support domestic demand, they also weighed on tax collections during the year.
As a result, achieving the fiscal deficit target of 4.4 per cent of GDP in 2025–26 may require some restraint on expenditure, the report said, underscoring the need for careful prioritisation of spending in the upcoming budget.
Looking ahead, the revenue outlook for 2026–27 appears more favourable. On a low base and improving demand conditions, revenue collections are expected to turn more buoyant, supported by both tax and non-tax receipts. This improvement could provide the government with greater flexibility to balance growth-supportive infrastructure spending with fiscal discipline.
Sustaining public investment in infrastructure remains a key policy priority, as it plays a central role in crowding in private investment, boosting productivity, and supporting medium-term growth.
The report added that maintaining this momentum, even while narrowing the deficit, would be critical at a time when external headwinds continue to pose risks to the economy.
With Union Budget 2026 approaching, the analysis highlights the trade-offs facing policymakers protecting infrastructure-led growth while staying committed to fiscal consolidation. Stronger revenue dynamics, the report suggests, could help ease these trade-offs and support a calibrated fiscal strategy in the year ahead.
