The fiscal deficit target of 4.4% of GDP for FY26 is expected to be met. For FY27, the fiscal policy is expected to witness important resets.
Download ReportQuantEco Research | India FY27 Union Budget Preview - Preparing for an economic reset
Post the initial COVID shock, India has displayed remarkable fiscal prudence in gradually scaling back the pandemic-era stimulus along with reinvigorating appetite for reforms. We expect the ethos of fiscal consolidation with prudence to be upheld by the Finance Minister as she unveils the Union Budget on Feb 1st 2026. The fiscal deficit target of 4.4% of GDP for FY26 is likely to be maintained despite pressure on revenues. For FY27, the fiscal policy is expected to witness important resets. Most importantly, active debt targeting is expected to replace the hitherto regime of deficit targeting – we expect the FY27 Union Budget to aim for a reduction in the Gross Central Government Debt to GDP ratio from FY26 BE of 56.1% to 55.1% in FY27. Beyond the shift in the policy anchor, the FY27 Union Budget could see structural changes in the resource-sharing framework between the Centre and States guided by the recommendations of the Sixteenth Finance Commission and is also expected to notify critical changes to the existing customs rate framework in order to correct the inverted duty structure, while helping to expedite the trade deal with the US. In terms of fiscal arithmetic, while the government may refrain from giving a point target for fiscal deficit, we expect the desired debt level consistent fiscal deficit target to be in the range of 4.1-4.3% of GDP. This is expected to be financed by fresh gross and net g-sec borrowing of 16.2 tn and Rs 10.7 tn for FY27 vs. Rs 14.6 tn and Rs 10.6 tn in FY26, respectively