The upcoming Union Budget for 2026-27 could see the government’s capital expenditure exceeding Rs 12 lakh crore, marking a 10% increase from the previous year, as per a report by SBI. This rise in capex aims to enhance investments in major infrastructure projects like highways, railways, ports, and power sectors to stimulate economic growth and job creation.
Amid global economic uncertainties, the FY27 budget is crucial for India to maintain fiscal prudence, given the escalating global debt risks. The country’s post-pandemic recovery has been notably stronger than after the global financial crisis, the report highlights.
Anticipating moderate growth in tax revenue and stagnant non-tax revenue for FY27, the report projects a nominal GDP growth of 10.5%-11%. The fiscal deficit is estimated to be around 4.2% of GDP for FY27, subject to adjustments due to the new GDP series.
The report foresees positive surprises in borrowings, with net Central borrowing at Rs 11.7 trillion and state gross borrowings at Rs 12.6 trillion for FY27. To manage borrowing needs, the Reserve Bank of India may need to conduct extensive open market operations, according to the SBI report.
Suggesting measures to boost financial savings, the report proposes aligning tax treatment for interest on deposits with capital gains, adjusting lock-in periods for tax-saving FDs, and revising interest thresholds for TDS on bank deposits. It also recommends amendments in indirect taxes to enhance clarity and reduce disputes.
Furthermore, the report emphasizes the necessity for reforms in the insurance and pensions sector to enhance market penetration. It calls for state budgets to outline medium-term debt trajectories aligned with growth assumptions and development requirements, rather than solely focusing on annual deficit targets.
