The Union Budget 2026 is expected to prioritise higher public investment, ease of doing business and gradual fiscal consolidation, supported by a more buoyant revenue outlook, according to a budget preview by ICICI Bank Research.
The report notes that FY26 growth was aided by both fiscal and monetary stimulus, including income tax relief and GST rationalisation amounting to nearly 0.9 per cent of GDP. While this supported domestic demand, it also led to muted tax collections, making expenditure rationalisation inevitable to meet the FY26 fiscal deficit target of 4.4 per cent of GDP.
Looking ahead, revenue collections in FY27 are projected to improve on the back of a low base, higher nominal GDP growth of around 10 per cent and sustained buoyancy in non-tax revenues, particularly dividends from the Reserve Bank of India and central public sector enterprises. This is expected to provide fiscal space to maintain capital expenditure at about 3.1 per cent of GDP while continuing with consolidation.
The report expects the Centre to target a fiscal deficit of around 4.2 per cent of GDP in FY27, aligned with the government’s shift in fiscal anchor towards reducing debt-to-GDP to nearly 50 per cent by March 2031. India’s debt-to-GDP ratio is projected to decline from about 56 per cent in March 2026 to the targeted level over the medium term through a gradual glide path.
On the policy front, the FY27 Budget is likely to emphasise deregulation, rationalisation of customs duties and measures to improve ease of doing business to crowd in private investment, especially in manufacturing. The focus is expected to be on sustaining infrastructure-led growth while ensuring better quality of expenditure.
ICICI Bank Research projects direct tax collections to grow by around 10 per cent year-on-year in FY27, driven by wage growth, formalisation of employment and improving corporate profitability. Indirect tax growth, however, is expected to remain modest due to ongoing GST and customs duty rationalisation, though excise collections may remain buoyant.
Capital expenditure in FY27 is estimated to rise to approximately Rs 12.3 trillion, a 9 per cent increase from the previous year, with defence, railways, roads, and telecom infrastructure likely to remain key beneficiaries. Revenue expenditure growth is expected to remain moderate, helping improve the overall quality of government spending.
The report also flags elevated gross borrowing requirements due to higher repayments in the coming years, which could exert pressure on bond yields unless managed through lower net borrowing, greater reliance on small savings, or debt switches.