ICRA said the government is likely to keep India’s fiscal deficit target for 2026-27 at 4.3% of GDP amid double-digit growth in capital expenditure.
The Mumbai-based rating agency said in its budget-expectations note released on Friday that Union Budget 2026 is going to be interesting. The government’s focus is shifting from the annual fiscal deficit target to medium-term debt consolidation as well as implementation of the 16th Finance Commission for the next five years.
ICRA expects the government to increase its capital expenditure by 14% ₹13.1 lakh crore in FY27 before fiscal stringency (8th Pay Commission) is implemented in FY28.
Certainly, ICRA’s fiscal deficit estimate of 4.3% in FY27 is 10 basis points lower than the estimated 4.4% in FY26. ICRA expects net tax revenue to decline ₹Rs 1.3 lakh crore in FY26, even as non-tax receipts exceed budgetary estimates ₹80,000 crores. “If the shortfall in receipts is matched by expenditure savings, fiscal slippage is unlikely in FY2016,” ICRA said.
Despite a slight decline in the fiscal deficit-to-GDP ratio, ICRA expects gross dated market issuance to grow sharply by 15-16%. ₹16.9 lakh crore, due to increase in redemptions, although this may come down due to switching of government securities.
Note: One basis point is one hundredth of one percentage point.
