What is the story about?
The Union Budget for FY27 is set to be a low-key but strategically important exercise, with the government expected to stay firmly on the path of fiscal consolidation even as it balances the competing demands of consumption revival and capital expenditure. Most economists and brokerages expect the Centre to peg the fiscal deficit at around 4.2–4.3 per cent of GDP in FY27, marginally lower than FY26, signalling continuity rather than a fresh fiscal impulse.
The Budget comes at a time when the global economy remains fragile, with elevated commodity prices, volatile bond markets and slowing global growth. Against this backdrop, India is being seen as a relative “island of stability”, but domestic fiscal headroom remains limited.
According to SBI Research, nominal GDP growth for FY27 is likely to be assumed at 10.5–11 per cent, allowing the government to target a fiscal deficit of around 4.2 per cent of GDP, even as revenue growth remains modest. JM Financial estimates suggest tax collections in FY26 have fallen short by nearly ₹2–2.2 lakh crore, largely due to weaker direct tax buoyancy, limiting the scope for aggressive spending expansion in FY27.
Capex to grow, but wallet is limited
While public capital expenditure remains the government’s primary growth lever, the pace of increase is expected to moderate. SBI Research projects central government capex crossing ₹12 lakh crore in FY27, implying a growth of about 10 per cent year-on-year, while Emkay’s base case is more conservative at 7 per cent growth, given fiscal constraints.
Rather than broad-based spending, the budget is expected to prioritise sector-specific capex, with higher allocations likely for railways, defence, power and energy transition, and select manufacturing-linked infrastructure. Roads and highways, which saw heavy allocations in earlier years, may see relatively slower growth this time, analysts say.
Borrowings stay high; RBI role crucial
Government borrowing requirements are expected to remain elevated. SBI Research estimates net central government borrowing at around ₹11.7 lakh crore in FY27, with states together borrowing another ₹8–9 lakh crore on a net basis.
With such a large supply of bonds, economists expect the RBI to play an active role through open market operations to manage yields and liquidity, especially as long-term bond yields remain under upward pressure.
No big tax surprises expected
On the taxation front, expectations remain muted. After major personal income tax relief and GST rationalisation in FY26, experts believe FY27 will avoid disruptive tax changes. Personal income tax slabs and capital gains taxes are expected to remain unchanged; further nudges toward the new tax regime are possible; disinvestment receipts are likely to remain modest, with asset monetisation continuing as a gradual process rather than a headline push.
Markets brace for continuity, not fireworks
Equity strategists expect the budget to be market-neutral, with no major triggers for a sharp rally or sell-off. Emkay Research describes FY27’s budget as a “continuity budget,” where the composition of spending matters more than headline numbers.
The broader policy message, analysts say, will be one of macro stability, fiscal discipline, and incremental reform, as the government conserves ammunition amid global uncertainty. In essence, Budget 2026 is expected to be about restraint rather than reach, preserving fiscal credibility, keeping debt on a declining path, and backing select growth engines without stretching the balance sheet.
Tight fiscal math amid global churn
The Budget comes at a time when the global economy remains fragile, with elevated commodity prices, volatile bond markets and slowing global growth. Against this backdrop, India is being seen as a relative “island of stability”, but domestic fiscal headroom remains limited.
According to SBI Research, nominal GDP growth for FY27 is likely to be assumed at 10.5–11 per cent, allowing the government to target a fiscal deficit of around 4.2 per cent of GDP, even as revenue growth remains modest. JM Financial estimates suggest tax collections in FY26 have fallen short by nearly ₹2–2.2 lakh crore, largely due to weaker direct tax buoyancy, limiting the scope for aggressive spending expansion in FY27.
Capex to grow, but wallet is limited
While public capital expenditure remains the government’s primary growth lever, the pace of increase is expected to moderate. SBI Research projects central government capex crossing ₹12 lakh crore in FY27, implying a growth of about 10 per cent year-on-year, while Emkay’s base case is more conservative at 7 per cent growth, given fiscal constraints.
Rather than broad-based spending, the budget is expected to prioritise sector-specific capex, with higher allocations likely for railways, defence, power and energy transition, and select manufacturing-linked infrastructure. Roads and highways, which saw heavy allocations in earlier years, may see relatively slower growth this time, analysts say.
Borrowings stay high; RBI role crucial
Government borrowing requirements are expected to remain elevated. SBI Research estimates net central government borrowing at around ₹11.7 lakh crore in FY27, with states together borrowing another ₹8–9 lakh crore on a net basis.
With such a large supply of bonds, economists expect the RBI to play an active role through open market operations to manage yields and liquidity, especially as long-term bond yields remain under upward pressure.
No big tax surprises expected
On the taxation front, expectations remain muted. After major personal income tax relief and GST rationalisation in FY26, experts believe FY27 will avoid disruptive tax changes. Personal income tax slabs and capital gains taxes are expected to remain unchanged; further nudges toward the new tax regime are possible; disinvestment receipts are likely to remain modest, with asset monetisation continuing as a gradual process rather than a headline push.
Markets brace for continuity, not fireworks
Equity strategists expect the budget to be market-neutral, with no major triggers for a sharp rally or sell-off. Emkay Research describes FY27’s budget as a “continuity budget,” where the composition of spending matters more than headline numbers.
The broader policy message, analysts say, will be one of macro stability, fiscal discipline, and incremental reform, as the government conserves ammunition amid global uncertainty. In essence, Budget 2026 is expected to be about restraint rather than reach, preserving fiscal credibility, keeping debt on a declining path, and backing select growth engines without stretching the balance sheet.
