New Delhi: India continues to stand out as a bright spot among major economies, supported by strong macro-economic fundamentals. According to an SBI Research report, the government’s capital expenditure (capex) is expected to cross Rs 12 lakh crore in FY27, marking a 10 percent year-on-year rise.
Higher government spending on infrastructure is seen as a key driver for sustaining economic growth and job creation.
Nominal GDP growth and revenue outlook
The report expects nominal GDP growth relevant for Budget calculations to be around 10.5–11 percent in FY27. Rising global commodity prices may push up wholesale price inflation (WPI), which could influence revenue trends.
However, slightly slower nominal growth could put pressure on tax collections. SBI noted that this may require more careful expenditure planning by the government.
GST and tax reforms to support revenues
Despite possible revenue challenges, the report said that GST rationalisation and a reduction in marginal personal income tax rates could help cushion the impact of a weaker tax base. These measures are expected to support consumption and improve tax compliance.
Dr. Soumya Kanti Ghosh, Group Chief Economic Advisor at SBI, said these reforms could help balance fiscal pressures in FY27.
Fiscal deficit seen at 4.2 percent of GDP
Based on the growth outlook, the fiscal deficit for FY27 is estimated at 4.2 percent of GDP. This suggests that the government may continue its path of fiscal consolidation while still supporting growth through spending.
The cost of government borrowing is expected to be in the range of 6.8–7.0 percent, with risks broadly balanced.
Borrowing estimates for FY27
Net central government borrowing for FY27 is estimated at Rs 11.7 trillion, accounting for around 70 percent of the fiscal deficit. This includes repayments of Rs 4.6 trillion, such as bond buybacks and debt switches.
State governments are expected to borrow Rs 12.6 trillion, with repayments of Rs 4.2 trillion. The report also suggested possible reforms in the State Development Loan (SDL) market to manage high borrowing levels.
Budget focus on medium-term debt planning
The report said the Union Budget 2026 may stress the need for states to clearly outline medium-term debt plans, linked to realistic growth assumptions, instead of focusing only on annual deficit targets.
