India’s medium-term macroeconomic outlook remains constructive as the Union Budget for FY27 signals continuity in capital expenditure alongside a softer fiscal drag, according to a report by Goldman Sachs.
The report said the Finance Minister Nirmala Sitharaman’s reaffirmation of the commitment to keep central government public debt on a declining path is an important signal, given India’s relatively elevated public-debt burden compared with most emerging market peers.
Goldman Sachs noted that the government aims to reduce central government debt to around 50 per cent of GDP (±1pc) by FY31, from a target of 55.6 per cent in FY27.
On fiscal consolidation, the report highlighted that the government has stayed the course, announcing a further 10 basis point reduction in the fiscal deficit to 4.3 per cent of GDP in FY27.
It added that the net fiscal drag on growth in FY27 is expected to be smaller than in FY26.
In terms of growth support, Goldman Sachs pointed out that the public capital expenditure target was retained at 3.1 per cent of GDP, with allocations tilted toward infrastructure-linked sectors.
The budget signalled continued emphasis on infrastructure investment, with strong allocations for defence, railways, and roads, although the report noted that execution has undershot budgeted capex in recent years.
Defence spending has been prioritised, with capital expenditure budgeted to grow by about 17 per cent year-on-year.
Transfers to states for capital expenditure are expected to rise by around 33 per cent year-on-year, which Goldman Sachs described as a constructive signal for investment-led growth.
Despite ongoing fiscal consolidation, the report said net market borrowing remains elevated.
However, it expects policy support, noting that the Reserve Bank of India is likely to remain a net buyer in FY27 to partly offset rupee liquidity drain from foreign exchange sales.
Goldman Sachs also underlined a broader policy shift, saying Indian policymakers are increasingly prioritising macroeconomic resilience over near-term growth spurts, with a continued focus on strengthening public-sector balance sheets to support durable, high and less volatile growth.
On equities, the report said the softer fiscal drag and steady capex spending were largely in line with expectations and continue to support a constructive view on Indian equities, driven by a recovery in earnings growth despite near-term volatility.