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2h ago

Pre-Budget Signals Point to Debt Consolidation With a Front-Loaded Capex Push

Pre-Budget analyses highlight a possible move to a debt-to-GDP anchor that would put the primary deficit at the center of fiscal management.

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Union Budget FY26 I Key Sector-Wise Expectations | Image: Republic

Overview

  • ICRA projects the FY27 fiscal deficit near 4.3% of GDP and central debt easing to about 55.1%, with capital outlays rising roughly 14% to Rs 13.1 trillion, or about 3.3% of GDP.
  • Gross market borrowings are expected to increase about 15–16% to Rs 16.9 trillion, reflecting higher capex and larger redemptions.
  • Revenue forecasts point to gross taxes growing around 7%, led by an 11% rise in direct taxes, while indirect taxes may advance roughly 2% following GST rate cuts, with last year’s RBI dividend unlikely to repeat.
  • Nomura indicates the Centre may shift its fiscal rule toward a public debt anchor targeting about 50% of GDP by FY31, elevating the primary deficit as the key gauge, as Morgan Stanley pegs the FY27 deficit near 4.2%.
  • Market previews from UBS and others suggest continued infrastructure spending with emphasis on defence and railways, alongside calls for reforms to strengthen household savings, private investment and human capital.