The Union Budget 2025-26 will prioritise fiscal consolidation, boosting consumption demand, enhancing infrastructure and manufacturing capital expenditure, India Ratings and Research (Ind-Ra) said on Monday.
The focus comes amidst a slowdown in growth over the past three quarters, it added.
India’s gross domestic product (GDP) growth fell to a seven-quarter low of 5.4% in July-September period. Based on the first advance estimates released by the National Statistical Office (NSO) earlier this month, the Indian economy is expected to grow at a four-year low of 6.4% in FY25.
The government is expected to adopt a tighter fiscal policy in FY26, targeting a fiscal deficit of 4.5%, Ind-Ra said.
“Notwithstanding the growth slowdown in FY25 and the likely minor growth improvement in FY26, the government will adhere to its fiscal consolidation roadmap provided in the medium-term fiscal policy-cum-fiscal strategy statement by the ministry of finance with the FY25 budget and peg the FY26 fiscal deficit at 4.5%,” said DK Pant, chief economist and head public finance, Ind-Ra.
This is based on Ind-Ra’s expectations of 10.2% nominal gross domestic product (GDP) growth in FY26, he added.
To stimulate consumption demand, the Budget may include income tax relief, the agency noted.
Ind-Ra projects a capex growth of 10% in FY26 compared to revised estimates for FY25, with the capex to GDP ratio likely to be at 3.2% in both FY25 and FY26.
On debt, Ind-Ra expects government’s outstanding debt to decline to 56.3% of GDP in FY26 from the forecasted 57.2% in FY25.
“The key monitorable in the revised fiscal roadmap is likely to be the debt/GDP ratio and thus, the fiscal health of the economy in the near term,” it added.
The net tax revenue to GDP ratio is anticipated to surpass 8% for the first time since FY09, the agency mentioned.
Corporation and income tax buoyancy are projected to decline to 0.98x each in FY26, reflecting a 10% growth for both.
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India’s gross domestic product (GDP) growth fell to a seven-quarter low of 5.4% in July-September period. Based on the first advance estimates released by the National Statistical Office (NSO) earlier this month, the Indian economy is expected to grow at a four-year low of 6.4% in FY25.
The government is expected to adopt a tighter fiscal policy in FY26, targeting a fiscal deficit of 4.5%, Ind-Ra said.
“Notwithstanding the growth slowdown in FY25 and the likely minor growth improvement in FY26, the government will adhere to its fiscal consolidation roadmap provided in the medium-term fiscal policy-cum-fiscal strategy statement by the ministry of finance with the FY25 budget and peg the FY26 fiscal deficit at 4.5%,” said DK Pant, chief economist and head public finance, Ind-Ra.
This is based on Ind-Ra’s expectations of 10.2% nominal gross domestic product (GDP) growth in FY26, he added.
To stimulate consumption demand, the Budget may include income tax relief, the agency noted.
Ind-Ra projects a capex growth of 10% in FY26 compared to revised estimates for FY25, with the capex to GDP ratio likely to be at 3.2% in both FY25 and FY26.
On debt, Ind-Ra expects government’s outstanding debt to decline to 56.3% of GDP in FY26 from the forecasted 57.2% in FY25.
“The key monitorable in the revised fiscal roadmap is likely to be the debt/GDP ratio and thus, the fiscal health of the economy in the near term,” it added.
The net tax revenue to GDP ratio is anticipated to surpass 8% for the first time since FY09, the agency mentioned.
Corporation and income tax buoyancy are projected to decline to 0.98x each in FY26, reflecting a 10% growth for both.
