The upcoming Union Budget 2026-27 is expected to emphasize fiscal restraint following significant tax breaks in the previous fiscal year. HSBC Mutual Fund’s Budget Preview anticipates a 10% capex growth in expenditure, with limited scope for revenue expenditure. The projected fiscal deficit for FY27 is estimated at Rs 16.6 lakh crore, equivalent to 4.2% of GDP, resulting in a debt-to-GDP ratio of 55.6%.
Overall, the deficit targets are set to be achieved at 4.4% of GDP, despite a lower Nominal GDP growth rate. The report highlights that FY27 redemptions currently amount to Rs 5.5 lakh crore, which could be reduced to Rs 4.5 lakh crore with potential buyback/switches/retirement strategies. This adjustment would lead to higher Gross Borrowing of Rs 16.3 lakh crore in the base case scenario.
The report assumes a Nominal growth rate of 10% year-on-year, with liabilities expected to increase at a slower pace of 8%. However, challenges in fiscal consolidation are noted due to the weighted average borrowing cost and Nominal GDP growth trends. The borrowing cost stood at around 7% in FY25 and approximately 7.20% in Q2 FY26, while Nominal GDP growth was modest at about 8% year-on-year.
