Union Budget of India: India has done well to show a robust real GDP growth of 8.0% in 1H 2025–26. Recent NSO data for 2Q 2025–26 highlighted a sectorally balanced growth profile, where both manufacturing and the services sectors showed near-equal growth at 9.1% and 9.2%, respectively, leading to an overall real GDP growth of 8.2% in this quarter.
Even on the demand side, growth was supported in a balanced way by private consumption and overall investment, with PFCE and GFCF growing at 7.9% and 7.3%, respectively, in 2Q 2025–26.
Also Read: Budget 2026: Sitharaman & Co will be counting every rupee on the road to Viksit Bharat 2047
Based on these quarterly numbers, the RBI and the Asian Development Bank (ADB) have revised their growth forecasts for 2025–26 to 7.3% and 7.2%, respectively.
India’s robust growth performance has been in spite of continuing global supply-side bottlenecks, tariff issues, and overall weak global demand. Benign crude prices have, however, worked in India’s favour.
The implicit price deflator (IPD)-based inflation was only 0.7% in the first half of 2025–26 and may, at best, rise to about 1.5% for the year as a whole, given current CPI and WPI inflation trends.
Thus, nominal GDP growth may be in the range of 9–9.5% for 2025–26. In contrast, Budget 2025–26 had assumed a nominal GDP growth of 10.1%.
Also Read: India Budget 2026: Tax reforms to help India win the new industrial power game
Recent GST reforms, which involved substantial rate reductions, may lead to a lower-than-budgeted GTR realisation in 2025–26.
However, the two newly introduced central excise duties on tobacco and tobacco products and the National Security and Public Health Cess may partially make up for the shortfall. Some additional cushion may also come from the RBI’s higher-than-anticipated dividends.
To reach the fiscal deficit target, some downward adjustment may need to be made in the amount of budgeted revenue expenditure. In the first seven months of this fiscal year, 50.9% of the budgeted revenue expenditure has been spent.
Some cushion may be provided since the nominal GDP numbers for 2024–25 have also been revised as compared to those given in the 2025–26 budget. Accordingly, if a growth of 9.5% is applied to the 2024–25 nominal GDP magnitude of Rs 330.7 lakh crore, the estimated magnitude for 2025–26 would amount to Rs 362.1 lakh crore, as compared to the budgeted magnitude of Rs 357.0 lakh crore.
The fiscal deficit target of 4.4% of the revised nominal GDP number would be Rs 15.9 lakh crore, higher by a margin of about Rs 20,000 crore as compared to what was budgeted. However, a supplementary demand amounting to additional expenditure of Rs 41,455.4 crore will have to be accommodated.
Also Read: Union Budget 2026: Capex in the driver’s seat of India’s growth story
Budgetary support to private consumption expenditure has already been implemented through the GST reforms. The prospects of private investment should now be better with the further lowering of the repo rate and private final consumption expenditure (PFCE) picking up in the first half of 2025–26, thereby signalling scope for higher capacity utilisation.
However, the Centre should continue maintaining a robust momentum of its own capital expenditure growth in the range of 15–20%. If global economic conditions improve, including a reduction of supply-side bottlenecks, private investment may also gather further momentum.
In the medium term, the GoI’s debt–GDP ratio may be reduced to at least 50% by 2029–30 and, after due calibration with a realistic path of nominal GDP growth, the budget should also specify the annual fiscal deficit targets in its Medium-Term Fiscal Policy-cum-Fiscal Policy Strategy Statement.
There is an expectation that global economic conditions may improve if the ongoing Russia–Ukraine war is satisfactorily resolved and global crude oil prices remain in the range of US$60–65/bbl.
Get the latest on Budget 2026 and related developments here.
D. K. Srivastava is the Chief Policy Advisor at EY India and the author of this article.
Even on the demand side, growth was supported in a balanced way by private consumption and overall investment, with PFCE and GFCF growing at 7.9% and 7.3%, respectively, in 2Q 2025–26.
Also Read: Budget 2026: Sitharaman & Co will be counting every rupee on the road to Viksit Bharat 2047
Based on these quarterly numbers, the RBI and the Asian Development Bank (ADB) have revised their growth forecasts for 2025–26 to 7.3% and 7.2%, respectively.
India’s robust growth performance has been in spite of continuing global supply-side bottlenecks, tariff issues, and overall weak global demand. Benign crude prices have, however, worked in India’s favour.
The implicit price deflator (IPD)-based inflation was only 0.7% in the first half of 2025–26 and may, at best, rise to about 1.5% for the year as a whole, given current CPI and WPI inflation trends.
Thus, nominal GDP growth may be in the range of 9–9.5% for 2025–26. In contrast, Budget 2025–26 had assumed a nominal GDP growth of 10.1%.
Revenue and Expenditure Trends in 2025–26
According to CGA data available for the period April to October 2025–26, the Centre’s gross tax revenues (GTR) have shown a growth of only 4% vis-à-vis the budgeted full-year growth of 10.8% over the 2024–25 revised estimate (RE).Also Read: India Budget 2026: Tax reforms to help India win the new industrial power game
Recent GST reforms, which involved substantial rate reductions, may lead to a lower-than-budgeted GTR realisation in 2025–26.
However, the two newly introduced central excise duties on tobacco and tobacco products and the National Security and Public Health Cess may partially make up for the shortfall. Some additional cushion may also come from the RBI’s higher-than-anticipated dividends.
To reach the fiscal deficit target, some downward adjustment may need to be made in the amount of budgeted revenue expenditure. In the first seven months of this fiscal year, 50.9% of the budgeted revenue expenditure has been spent.
Some cushion may be provided since the nominal GDP numbers for 2024–25 have also been revised as compared to those given in the 2025–26 budget. Accordingly, if a growth of 9.5% is applied to the 2024–25 nominal GDP magnitude of Rs 330.7 lakh crore, the estimated magnitude for 2025–26 would amount to Rs 362.1 lakh crore, as compared to the budgeted magnitude of Rs 357.0 lakh crore.
The fiscal deficit target of 4.4% of the revised nominal GDP number would be Rs 15.9 lakh crore, higher by a margin of about Rs 20,000 crore as compared to what was budgeted. However, a supplementary demand amounting to additional expenditure of Rs 41,455.4 crore will have to be accommodated.
Budget 2026–27 Prospects
PIT and GST reforms have been undertaken in 2025–26. Earlier, comprehensive CIT reforms were undertaken in 2019–20. There may be scope for only limited rationalisation going forward. The overall objective of tax reforms should be continued simplification of tax provisions and a tax-base-promoting rate structure.Also Read: Union Budget 2026: Capex in the driver’s seat of India’s growth story
Budgetary support to private consumption expenditure has already been implemented through the GST reforms. The prospects of private investment should now be better with the further lowering of the repo rate and private final consumption expenditure (PFCE) picking up in the first half of 2025–26, thereby signalling scope for higher capacity utilisation.
However, the Centre should continue maintaining a robust momentum of its own capital expenditure growth in the range of 15–20%. If global economic conditions improve, including a reduction of supply-side bottlenecks, private investment may also gather further momentum.
Prioritising Fiscal Consolidation
To sustain the current growth momentum into the medium term, the budget should continue its emphasis on capital expenditure growth while adhering to a well-defined fiscal consolidation path. Government capital expenditure is likely to crowd in private sector investment, which may also be facilitated by the lower repo rate and robust domestic demand.In the medium term, the GoI’s debt–GDP ratio may be reduced to at least 50% by 2029–30 and, after due calibration with a realistic path of nominal GDP growth, the budget should also specify the annual fiscal deficit targets in its Medium-Term Fiscal Policy-cum-Fiscal Policy Strategy Statement.
There is an expectation that global economic conditions may improve if the ongoing Russia–Ukraine war is satisfactorily resolved and global crude oil prices remain in the range of US$60–65/bbl.
Get the latest on Budget 2026 and related developments here.
D. K. Srivastava is the Chief Policy Advisor at EY India and the author of this article.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
