The government is anticipated to reveal Budget 2026 with a total expenditure of around Rs 53.5 trillion, projecting a 15% growth in capital expenditure and aiming for a fiscal deficit target of 4.2%. An investment management firm’s report indicated that tax revenues are forecasted to increase by about 10% year-on-year in FY27, based on a nominal GDP growth assumption of approximately 9%. Additionally, non-tax receipts are also expected to grow by nearly 10%, reflecting normalized dividend payouts and steady central public sector enterprise profitability (CPSE) without considering exceptional transfers from the RBI.
The report suggests that borrowings are likely to see a modest rise of about 3% year-on-year, implying a fiscal deficit of around 4.1–4.2% of GDP for FY27, in line with the current consolidation path. Over the past decade, there has been a structural transformation in successive Union Budgets, with capital expenditure rising from about 20% of total budgetary spending in FY16 to over 30.6% in FY26. This increase in capex allocation signifies a significant shift towards asset creation and long-term growth.
Capital expenditure has shown a compound annual growth rate (CAGR) of approximately 15% over the last decade, surpassing the growth rate of revenue expenditure at 8.8%. This growth trend reflects a sustained policy emphasis on infrastructure development, productivity enhancement, and attracting private investments, rather than relying on consumption-led fiscal expansion, as per the report. The projected capex includes grants for capital assets, with total public capex estimated at around Rs 17 lakh crore in FY27, reinforcing the strategy for infrastructure-led growth.
Budgetary allocations demonstrate a continuation of fiscal priorities, with defense and core infrastructure remaining key spending areas. The firm notes a gradual shift towards technology, energy, and urbanization, alongside interest payments posing a structural constraint on revenue-side flexibility.
