Sankhanath Bandyopadhyay, Senior Economist, Infomerics Analytics & Research
The Union Budget 2026-27 announcements remain pragmatic and direction oriented. The announcement of supporting mineral rich states with rare earth corridors is a step forward in strengthening the “Atmanirbhar Bharat” agenda. In addition to the dedicated SME Growth Fund of ₹10000 crore, the proposal to top up of the Self-Reliant India Fund with ₹2,000 crore continual support to micro enterprises and maintain their access to risk capital is a prudent measure to augment growth of the segment. The four measures announced in line with the liquidity support for the MSMEs as well as measures in helping compliance are expected to facilitate further the ease of doing business for them. The increase of public capex to 12.2 lakh in FY2026-27 will also support in maintaining infrastructure growth momentum, while announcement of an outlay of ₹20,000 crore aligned with the Carbon capture & storage (CCUS) in end-use applications across five industrial sectors, including, power, steel, cement, refineries and chemicals will achieve higher readiness levels for such industries and will be climate friendly. The announcement regarding the municipal bond issuance is growth inducive. The acceptance of the 16th Finance Commission (FC)’s recommendations and allocation of including rural and Urban Local Bodies (ULBs) and Disaster Management Grants is another prudent step.
It has to be noted that a comparative assessment of India’s Debt-to-GDP ratio vis-à-vis other countries have shown that India is in a much better position compared to such countries including some of the developed countries who get the leeway due to their currency and investible papers advantages. What is more prudent for India is that Indian policymakers under the NDA government have maintained their committed targets, and that’s why measures are pragmatic and carefully monitored by them. The debt sustainability reflected in the difference between (r-g) remains prudent with a better outcome of higher real GDP growth rate (however, there may be some caveats due to global macroeconomic volatility which may have some external impact on interest rate premium). Nonetheless, the estimated debt-to-GDP ratio of 55.6 per cent in the Budget Estimate (BE) 2026-27, compared to 56.1 percent of GDP in RE 2025-26 remains prudent and pragmatic.
In the Revised Estimate (RE) 2025-26, the fiscal deficit has been estimated at par with BE of 2025-26 at 4.4 percent of GDP. In line with the new fiscal prudence path of debt consolidation, the fiscal deficit in BE 2026-27 is estimated to be 4.3 percent of GDP. However, there is a mild concern given the reduced GST rates revenue collection and uncertainty regarding other revenue sources. To finance the fiscal deficit, the net market borrowings from dated securities are estimated at ₹11.7 lakh crore, whereas the balance financing is expected to come from small savings and other sources. The gross market borrowings are estimated at ₹17.2 lakh crore. One concern regarding this is how the bond market will behave, we need to see the trends of the bond market going forward, as there was disconnect despite the reduction of the repo rate. The costs of financing via other avenues like CPs and related have increased and resorted to many NBFCs. The transmission has not yet been symmetrical despite RBI’s continuous repo rate softening.
The government has corrected the earlier misprint where the supply side measures like reduced corporate tax rates failed to achieve any fruitful result, by subsequently trying to inject more disposable income for common people in its personal income tax related measures. Continuation of such measures could be more prudent step as Indian economy is a consumption driven economy. On the other hand, the preventive tax measure regarding buyback of shares is an attempt to prevent the misuse of such buybacks. The proposed increase in STT on options is also another attempt to check the proliferation of financial shenanigans.
Overall, Union Budget 2026-27 remains pragmatic in announcing addressable measures and cautious in avoiding any unwarranted market surprises, though there are certain downtrends in the BSE Sensex due to STT related measures on options and profit booking by investors. The announcements in the Budget remain practical and show intent in addressing current anomalies. We must keep in mind that we are living in an era of heightened volatility due to global headwinds and there is less scope for any adventurism. The Budget keeps this in mind.
