Infrastructure spending, or capital expenditure (capex), has been one of the government’s biggest growth drivers. But Sen Gupta cautioned that sustaining double-digit increases year after year is becoming difficult.
“It is getting difficult to keep on increasing the quantum of capex that the government can execute in a year,” she said, pointing to challenges on the ground and the need to find new sectors beyond roads and railways to deploy funds. Another key pressure will come from the upcoming pay commission, which typically leads to higher government salaries and pensions.
“Pay commission means that the wages and pension component of government expenditure will see a one-time jump,” Sen Gupta said, adding that this could force the government to rebalance its spending priorities.
As a result, while capex will remain important, its growth rate is likely to moderate rather than accelerate further.
“There is always a limit to how much you can squeeze the fiscal deficit. The pace of consolidation is going to slow down from FY27 onwards,” Sen Gupta said in an interview with Firstpost.
India’s fiscal deficit currently stands at around 4.4 per cent of GDP. While the government has steadily reduced it over the past few years, Sen Gupta explained that from FY27 onwards, the focus will shift more towards reducing overall government debt rather than aggressively cutting the deficit every year.
“Even if the fiscal deficit stays at 4.4 per cent, the central government debt-to-GDP ratio still reduces because nominal GDP growth picks up,” she said, adding that faster economic growth naturally makes government finances healthier.
Despite these challenges, Sen Gupta expects the government to remain conservative on fiscal management. IDFC Bank expects the fiscal deficit to ease slightly to around 4.2 per cent of GDP in FY27.
“This government likes to be very fiscally prudent,” she said, explaining why a small reduction in the deficit is still likely, even though faster growth would allow more flexibility.
Government finances are also expected to get support from stronger tax collections as economic growth improves, along with a healthy dividend from the Reserve Bank of India.
“The RBI dividend is still substantial, tracking at around ₹2.2 trillion,” Sen Gupta said, noting that this provides an important buffer for the government.
Trade worries still linger
On the global front, Sen Gupta flagged risks from trade tensions and geopolitical uncertainty, particularly delays in a US–India trade deal. While exports to the US have softened in recent months, the full impact of higher tariffs has not yet played out.
“The trade environment remains challenging, and the risks from global uncertainty cannot be ignored,” she said.
Overall, the upcoming Budget is expected to avoid big surprises, focusing instead on steady fiscal management, realistic spending plans, and protecting growth amid a volatile global backdrop.
