India’s tax collections are projected to see a significant increase in the fiscal year 2027, with gross tax buoyancy expected to rise to 1.1 from the estimated 0.64 in FY26, according to a report by HDFC Bank. The report forecasts a nominal GDP growth of around 10.1% in FY27, following an estimated 8.5% in FY26. It also anticipates a 10.5% growth in capital expenditure to approximately Rs 11.5–12 lakh crore, while revenue expenditure is likely to increase by 9.5% to Rs 41.9 lakh crore.
The government is on track to achieve its fiscal deficit target of 4.4% for FY26, with the deficit expected to be around Rs 15.79 lakh crore compared to the budgeted Rs 15.69 lakh crore, as per the report. The report further suggests that fiscal consolidation will persist in the upcoming Union Budget 2026-27, aiming for a deficit target of 4.2% for FY27, down from 4.4% in FY26. It also projects a debt/GDP ratio of 55.1% for FY27, a decrease from 56.1% in FY26 (BE).
With higher government bond supply leading to demand/supply imbalances, the report indicates a potential for open market operation (OMO) purchases amounting to about Rs 4–Rs 4.5 lakh crore in FY27, which could keep the 10-year yield elevated within a range of 6.5–6.7%.
The report highlights that various factors such as India’s potential inclusion in the Bloomberg bond index, a favorable borrowing profile, ongoing liquidity support from RBI, and FII flows could help in stabilizing bond yields. Additionally, a recent think tank forum report has recommended focusing on freezing peak direct tax rates, expanding the direct tax base through technology, avoiding MRP-based taxation, and addressing GST credit chain completion in the upcoming Union Budget.
Suggestions from the forum also include outlining a phased roadmap in the Budget to bring petroleum, electricity, and other excluded inputs under GST to enhance tax neutrality and reduce costs for industries. Furthermore, the report emphasizes incentivizing productive reinvestment and taking strong measures to curb the parallel economy.
