Budget 2026-27: ₹54.1 Trillion Outlay Expected Amid Fiscal Prudence

Introduction: A Calibrated Fiscal Path

As Finance Minister Nirmala Sitharaman prepares to present the Union Budget for 2026-27, all eyes are on the government's fiscal strategy. According to a report by Sunidhi Securities & Finance Limited, the budget is projected to have a total outlay of ₹54.1 trillion, marking a 7.9% year-on-year increase. This announcement comes as India's economy demonstrates strong real momentum, even while grappling with subdued nominal growth. The upcoming budget is expected to navigate this complex economic landscape by continuing a path of calibrated fiscal consolidation, aiming to balance growth imperatives with macroeconomic stability.

The Economic Backdrop: Real Growth vs. Nominal Slowdown

India is set to enter the new fiscal year with a robust real GDP growth estimate of 7.4% for FY26, as per the Central Statistical Office. This highlights the underlying resilience of the domestic economy, driven by factors such as strong urban demand following recent GST reforms. However, this strength is contrasted by a sluggish nominal GDP growth, estimated at around 8%, the slowest in nearly six years. This divergence is primarily due to persistent disinflationary pressures. The subdued nominal growth has direct implications for the budget, as it can impact tax buoyancy and overall revenue collections, which are calculated on a nominal basis.

Total Expenditure and Consolidation Strategy

The government's fiscal intent is most clearly reflected in its total expenditure (TE) as a percentage of GDP. After averaging 14.8% of GDP between FY23 and FY25, the TE for FY26 was budgeted at 14.2% (₹50.65 trillion) but is expected to be revised down to 14.0% (₹50.15 trillion) due to weaker nominal growth. For FY27, the projected expenditure of ₹54.1 trillion will moderate further to about 13.8% of GDP. This gradual reduction indicates a deliberate policy of fiscal consolidation rather than aggressive fiscal tightening, ensuring that essential growth-supportive spending is not abruptly curtailed.

Navigating the Fiscal Deficit

A key metric for the budget will be the fiscal deficit target. For FY27, the deficit is projected to be 4.16% of GDP, which translates to ₹16.37 trillion. This is a reduction from the FY26 budget estimate of 4.4% of GDP (₹15.69 trillion). While the deficit is set to increase in absolute terms, its decline as a share of the GDP signals continued progress towards the goals outlined in the Fiscal Responsibility and Budget Management (FRBM) Act. The government's long-term aim is to bring the central government's debt-to-GDP ratio to around 40% by FY31, a path that requires consistent and incremental deficit reduction.

Key Fiscal Projections at a Glance

To provide a clear overview, the following table summarizes the key estimates for the upcoming fiscal year compared to the current one.

Spotlight on Defence Allocation

Amid geopolitical tensions, a significant focus of the budget will be on defence spending. The Ministry of Defence has been advocating for an increase in its allocation from the current 1.9% of GDP to a more robust 2.5%. Defence Secretary Rajesh Kumar Singh has indicated that the ministry will be requesting a nearly 20% higher allocation in the upcoming budget. A critical concern within the defence budget is the declining share of capital outlay, which is essential for modernization. In FY24, capex was 29% of the defence budget, which fell to 27.65% in FY25 and further to 26.43% in FY26. Reversing this trend to enhance technological capabilities will be a key challenge.

Sustaining Growth Through Strategic Investments

To maintain economic momentum, the budget is expected to continue its focus on strategic sectors. Support for Micro, Small, and Medium Enterprises (MSMEs) remains a priority, with measures like increased credit guarantee covers aimed at improving access to finance. The government's push for 'Make in India' and 'Viksit Bharat 2047' will likely translate into continued high-quality capital expenditure in infrastructure, including logistics, renewable energy, and industrial corridors. The asset monetization plan is another tool expected to be leveraged to fund new projects and boost investment without straining the exchequer.

Industry Expectations and Challenges

Industry stakeholders are looking for the budget to further improve the ease of doing business. Key demands include strengthening single-window clearances, reducing procedural hurdles, and ensuring a stable and predictable tax regime. For exporters, particularly MSMEs, rising global protectionism and tariffs are a major concern. Policy support through export incentives or targeted relief could help these businesses navigate a challenging international trade environment. Furthermore, securing supply chains for critical minerals and energy has become a strategic priority, and the budget may include measures to bolster domestic capacity and diversify import sources.

Conclusion: A Balancing Act for a Resilient Economy

The Union Budget for 2026-27 is poised to be a carefully constructed financial plan. It must address the dual challenges of sustaining a high-growth trajectory while adhering to a path of fiscal prudence. The government's approach of calibrated consolidation suggests a strategy focused on long-term stability. By prioritizing strategic capital expenditure, supporting key growth drivers like MSMEs, and maintaining a predictable policy environment, the budget aims to fortify India's economic resilience and steer it closer to its long-term development goals.