The Union Budget for FY26 is expected to emphasise on targeted fiscal policies to sustain growth while adhering to the fiscal consolidation roadmap. Nomura anticipates a fiscal deficit target of 4.4% of GDP, a reduction from 4.8% in FY25, signaling a balanced approach to economic growth and fiscal prudence.
The government is expected to project a nominal GDP growth rate of 10.3% for FY26, compared to 9.7% in FY25, reflecting optimism about a modest recovery in economic activity.
Public capital expenditure is likely to increase by approximately 12.5% year-on-year, raising capex to 3% of GDP in FY26 from an estimated 2.9% in FY25. This includes potential relaxation of loan conditions for states to facilitate higher spending. However, the pace of capex growth is expected to moderate from the 20% year-on-year levels seen previously.
Adjustments in personal income tax slabs are anticipated to enhance disposable income for middle-class households, potentially boosting consumption. Additionally, a recovery in corporate tax collection growth is expected after weaker performance in FY25.
Over the past five years, Nirmala Sitharaman has drawn great attention towards women’s welfare with the announcement of various fund allocations and initiatives. We can trace these developments through the announcements made with every Union Budget. These initiatives have aimed to address the challenges faced by women in accessing financial services, promoting entrepreneurship, and empowering them economically and socially.
Measures under the “Make in India” initiative are expected, including concessional corporate tax schemes, reduced customs duties on intermediate inputs, and increased import duties to counter dumping.Investments in cold storage and agricultural infrastructure are likely to mitigate food price shocks and stabilize supply chains.
An increase in the foreign direct investment limit in the insurance sector to 100% from 74% is expected, alongside initiatives to encourage public sector companies to tap into overseas funding.
Rupee management and disinvestment
The government may raise customs duties on gold imports to address rising imports impacting the current account. It is expected to maintain the FY25 target for disinvestment proceeds at Rs 50,000 crore, equating to 0.14% of GDP.
Reserve Bank of India dividends are estimated at Rs 80,000 crore (~0.2% of GDP), lower than FY25’s record Rs 2.1 trillion. Revenue expenditure growth is expected to slow to 4.0% in FY26 from 6.0% in FY25.
Finance Minister Nirmala Sitharaman will be presenting her 8th Union Budget on February 1. Expectations include tax reforms, fiscal consolidation, and growth-driven spending amidst economic challenges. Here’s a comprehensive FAQ to the upcoming budget, its key expectations, and the current state.
The Budget is expected to provide clarity on fiscal rules from FY27, with a focus on reducing central government debt as a percentage of GDP.
Nomura’s analysis highlights that the FY26 Budget will likely combine fiscal discipline with growth-supportive measures, creating room for the Reserve Bank of India to begin lowering policy rates in February 2025.
