Shahid K Abbas
New Delhi, Jan 6 (UNI) As Finance Minister Nirmala Sitharaman prepares to present the union Budget for 2026–27 on February 1, early fiscal indicators suggest that while the government is likely to stay committed to its medium-term fiscal consolidation roadmap, higher market borrowings may be unavoidable amid front-loaded spending pressures and a renewed push on capital expenditure.
The Centre’s fiscal deficit stood at 62.3 per cent of the full-year budget estimate during April–November 2025–26, significantly higher than the 52.5 per cent recorded in the same period last year. More strikingly, the primary deficit — which excludes interest payments — has already reached 78.9 per cent of the annual target, nearly double the 41.8 per cent utilisation seen a year earlier. Economists interpret this as a signal of heavier early-year spending, particularly on infrastructure and welfare-linked outlays.
Despite the sharper pace of deficit accumulation in the current year, the government is expected to announce a fiscal deficit target of around 4.3 per cent of GDP for FY 2026–27, in line with its stated glide path towards 3 per cent by 2030–31. Officials and analysts argue that this calibrated approach balances the need for fiscal credibility with the demands of growth support.
“The glide path allows the government to consolidate without choking off investment at a time when global growth remains uneven,” said a senior economist at a public-sector bank, adding that India’s macro fundamentals provide room for a gradual rather than aggressive correction.
Budget expectations remain broadly positive, underpinned by strong GDP growth, robust industrial output as reflected in recent IIP data, sustained structural reforms and improvements in the ease of doing business. The government’s explicit focus on job creation, particularly through manufacturing, infrastructure and green transition projects, is also expected to shape expenditure priorities.
Higher nominal GDP growth is likely to help contain the deficit ratio even if absolute borrowing rises, offering the finance minister some flexibility on the fiscal arithmetic.
However, a continued emphasis on capital expenditure, which has been the backbone of the government’s growth strategy, is expected to translate into higher gross market borrowings in FY 2026–27.
While official borrowing numbers will be known only on Budget day, analysts estimate that gross market borrowings could rise modestly from the current year, reflecting higher capex allocations, rollover of existing debt and limited scope for large non-debt capital receipts. Net market borrowings, too, are expected to remain elevated, even as the government seeks to smooth maturities and extend the duration of its debt.
Bond market participants are watching closely for signals on the borrowing calendar and the Centre’s reliance on short- versus long-tenure securities. A higher-than-expected borrowing programme could exert upward pressure on yields, though this may be partially offset by strong demand from domestic institutions and the Reserve Bank of India’s liquidity management.
The key challenge for the Budget will be to reconcile fiscal discipline with growth imperatives. With revenue buoyancy expected from stable tax collections and improved compliance, the government may aim to protect capex even if it means tolerating slightly higher borrowing in the near term.
As one former finance ministry official put it, “The test of Budget 2026–27 will not be the headline deficit number alone, but whether the quality of spending continues to improve while keeping the consolidation story credible.”
With markets, rating agencies and investors all focused on the fine print, the February 1 Budget is expected to reaffirm India’s commitment to fiscal prudence — even as it acknowledges the realities of a growing economy with expanding investment needs.
