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Below the Quote on Budget expectations by Ms. Namrata Mittal, CFA, Chief Economist, SBI Mutual Fund

''The Indian economy is showing early signs of a growth recovery in FY27, supported by GST rationalization and improved supply-side dynamics in bank credit. However, a broad-based growth impulse is still missing, and continued policy support remains essential. In line with its debt-consolidation roadmap, the Centre is expected to adhere to its FY26 fiscal deficit target of 4.4% of GDP and pursue an additional 20 bps consolidation in FY27. While FY26 may witness a shortfall in gross tax revenues, this is likely to be partially offset by higher-than-anticipated non-tax revenues. Lower-than-budgeted spending by the Jal Jeevan Mission, the Ministry of Urban Development, and the Ministry of Rural Development (particularly under MGNREGA) is expected to keep revenue expenditure below target in FY26.

For FY27, gross tax revenues are projected to grow by 10.5–11%, enabling capital expenditure of around ?12.5 trillion (a 13.5% increase) and revenue expenditure growth of 7–8%. We estimate gross and net issuance of dated securities at ?15.5–16.5 trillion and ?11–12 trillion, respectively. After two years of likely negative net supply in short-term borrowings, net T?bill issuance could rise to ?1 trillion in FY27. Assuming nominal GDP growth averages 10% over the next five years, the Centre would need to reduce the fiscal deficit by roughly 20 bps annually to achieve a debt-to-GDP ratio of 50% ±1% by FY31. These estimates may be revised once the new GDP series is introduced, as many fiscal ratios use GDP as their denominator.

Beyond fiscal arithmetic, the Union Budget is expected to sustain its focus on supporting MSMEs facing tariff-related external pressures, pursue further rationalization of customs duties, maintain its emphasis on capital expenditure, and explore measures to incentivize job creation. Given that significant tax reforms have already been implemented in the past two years, this Budget may lean more towards expenditure-side initiatives. However, any changes to capital gains taxation could influence near-term equity market sentiment. Markets will also watch for innovative government strategies to tap the growing investment appetite for precious metals.

The fixed-income market will pay close attention to the recommendations of the 16th Finance Commission, expected around the same time, as these will shape state finances and influence the overall supply of government securities in FY27. Despite the RBI’s gradual shift toward monetary easing, bond yields remain elevated due to tight demand–supply conditions and currency market pressures. Provided there are no major tax shocks, the equity market is likely to see only limited impact from this year’s Budget."

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