FY27 Union Budget: Key Takeaways & Investment Opportunities by Choice Institutional Equities
Executive Summary:
* Nominal GDP growth for FY27E is estimated at 10%, whereas real GDP is expected to grow at 7.4%.
* The budget focused on creating sustainable pillars for growth via key programmes in Manufacturing and Services. Manufacturing focused on BioPharma, EMS, Exports, Semiconductors and Containers while Services to contribute 51% of GVA through Tourism, Healthcare, TReDS mandates and Creative Economy.
* A fiscal consolidation pathway is underway, targeting 4.3% Fiscal Deficit on the back of lower overall Debt-to-GDP ratio of 50% ± 1% by FY31E.
Revenue and Taxation: Expect Lower Tax Buoyancy
* Direct Taxes: Growing at a rate of 9.0% from FY26E to FY27E form a major part of Revenues. Lower tax buoyancy of 0.8 is expected on the back of tax revenues growing slower than GDP.
*Custom Duty Exemptions: Basic custom duties have been exempted on capital goods for processing of seafood, inputs for footwear exports, Aircraft Manufacturing, Defence.
* Non-Tax Revenue: The budget has set a target of INR 800 Bn from share sales and asset monetisation via REITs. Real Estate carved out from CPSEs could be monetised via REITs and InViTs Expenditure Profile: Quality and Capex Multipliers ? Capital Outlay Expansion: The Centre’s capital expenditure estimates have been revised downwards for FY26RE, however, FY27E budget allocates INR 12.2 Tn , a growth of 10.9%
* Effective Capex: Broader capital measures, including grants-in-aid for asset creation, are budgeted at 4.4% of GDP for FY27E.
* Defence Capex: Set to grow at a pace of 17.6% for FY27E, growing by more than 15% second year in a row. Fiscal Strategy: Consolidating in Times of Stress
* Deficit Targets: The government is on a firm path to reach a fiscal deficit of 4.4% of GDP in FY26, and further targets 4.3% in FY27 BE.
* The New Fiscal Anchor: A transition to a Debt-to-GDP ratio target of 50% ± 1% by FY31 provides a concrete long-term commitment while retaining policy flexibility in a volatile global environment.
* Lower subsidy burden, Slower growth in CapEx is leading to a sharper fiscal deficit reduction. With smart allocations CapEx is estimated to exceed borrowings for the first time.
Sectoral Themes: Strategic Indispensability for Local Manufacturing and Services
* Pushing for Strategic Local Manufacturing: A 10-year blueprint to double manufacturing's GDP contribution to 25% by 2035E and generate 143 Mn jobs. Further emphasized via Indian Semiconductor Mission 2.0, BioPharma Shakti, EMS monitoring. The government targets reviving 200 legacy industrial clusters while establishing dedicated chemical parks and supporting construction equipment manufacturing. Plug and Play Industrial parks in or near 100 cities have been allocated INR 30 Bn. Basic customs duty have been reduced on select capital goods and inputs to encourage exports.
* Services Evolution: Services remain a stabilizing force, expecting to contribute over 51% of GVA, with a focus on new frontiers like the "Orange Economy" and Medical Tourism. There is an ambitious target of 2047E to capture 10% of global services’ share. Healthcare tourism will be supported by strong policy measures. Foreign Players that provide cloud services in India to receive a tax holiday till 2047E. Medium Enterprises will receive INR 100 Bn SME Growth Fund plus TReDS platform mandates for enhanced liquidity. Services sector gains prominence through a HighPowered Standing Committee, with investments in medical value tourism hubs, Animation, Visual, Gaming, Content (AVGC) labs across 15,500 institutions, and comprehensive tourism infrastructure development. External Sector: Resilience Amid Fragmentation
* Current Account Stability: The CAD remains manageable at 0.8% of GDP (H1 FY26), buffered by resilient services trade and remittances.
* FDI & Strategic Resilience: While global FDI is deteriorating, India is focusing on "connector country" strategies to attract high-value manufacturing.
* Foreign Exchange Buffers: Reserves are sufficient to cover over 11 months of imports, providing a significant cushion against external shocks.
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