Budget 202627 To Focus On Debt Consolidation & Capex Push: ICRA

2026-01-22 02:11:14

(MENAFN- KNN India) New Delhi, Jan 22 (KNN) The Union Budget for 2026–27 (FY2027) is expected to focus on medium-term debt consolidation while maintaining a strong emphasis on capital expenditure, according to a pre-Budget assessment by rating agency ICRA.

The Budget will also align with the recommendations of the 16th Finance Commission, which will shape Centre–state fiscal relations over the next five years.

Fiscal Deficit and Debt Path

ICRA projects the Centre's fiscal deficit at about 4.3 per cent of GDP in FY2027, slightly lower than the 4.4 per cent budgeted for FY2026, based on nominal GDP growth of 9.8 per cent. In absolute terms, the deficit is expected to rise to Rs 16.9 trillion from Rs 15.7 trillion.

The debt-to-GDP ratio is projected to ease from 56.1 per cent to around 55.1 per cent, in line with the government's consolidation roadmap.

Capital Spending Before Cost Pressures Rise

Capital expenditure is expected to increase by around 14 per cent to Rs 13.1 trillion, or 3.3 per cent of GDP. ICRA said this front-loading of infrastructure spending comes ahead of rising committed expenditure from FY2028, when the 8th Central Pay Commission is expected to raise salary and pension liabilities.

Revenue Trends and Deficit Outlook

Gross tax revenues are projected to grow by about 7 per cent, driven by an 11 per cent rise in direct taxes, while indirect tax growth may remain muted at around 2 per cent following GST rate cuts from September 2025.

After tax devolution of Rs 15.4 trillion, net tax revenues are expected to rise 5.2 per cent to Rs 28.5 trillion.

Revenue expenditure growth is projected at around 4 per cent, helping narrow the revenue deficit to Rs 4.7 trillion, or 1.2 per cent of GDP-the lowest in nearly 20 years.

Borrowing to Increase

Despite modest fiscal improvement, higher capex and increased debt redemptions are expected to push gross market borrowings up by 15–16 per cent to Rs 16.9 trillion in FY2027, partly offset by government securities switching operations.

(KNN Bureau)

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