Union Budget 2026: Capex Rises to ₹12.2 Lakh Crore

Introduction to Union Budget FY27

Finance Minister Nirmala Sitharaman presented the Union Budget for the fiscal year 2026-27, outlining a strategy that balances continued capital expenditure with a gradual path of fiscal consolidation. The budget projects a fiscal deficit of 4.3% of Gross Domestic Product (GDP) for FY27. This approach aims to sustain economic growth momentum while managing government finances prudently. The government's spending and revenue plans are set against a backdrop of a projected 10% nominal GDP growth.

Revenue Projections and Non-Tax Dependence

The Centre has budgeted for a 7.1% increase in its net tax revenue for FY27, estimating collections at ₹28.66 lakh crore. This is an increase from the Revised Estimates of ₹26.74 lakh crore for FY26. The projected growth in tax revenue is notably lower than the nominal GDP growth forecast, suggesting a greater reliance on other income sources. To fund its spending, the government will depend more on non-tax receipts. Dividends and profits are expected to contribute ₹3.91 lakh crore in FY27, up from ₹3.75 lakh crore in the previous fiscal's revised estimates. Furthermore, the budget sets a disinvestment target of ₹80,000 crore, categorized under miscellaneous capital receipts, which likely includes proceeds from the proposed stake sale in IDBI Bank.

Capital Expenditure as a Growth Driver

A key highlight of the budget is the continued emphasis on public infrastructure spending. The Centre has pegged its capital expenditure (capex) at ₹12.2 lakh crore for FY27. This represents a significant increase from the revised capex of ₹10.97 lakh crore for FY26. This sustained push in capex is intended to drive economic activity, create assets, and attract private investment. The allocation underscores the government's strategy of using public spending to support growth, especially when private investment remains cautious.

Fiscal Consolidation Roadmap

The budget continues the government's stated policy of gradual fiscal consolidation. The fiscal deficit target for FY27 is set at 4.3% of GDP, a marginal reduction from the 4.4% estimated for FY26. The revenue deficit is pegged at 1.5% of GDP for FY27. As part of a new fiscal road map, the budget proposes to lower the central government’s debt-to-GDP ratio to 55.6% in FY27. The medium-term objective is to further reduce this ratio to approximately 50% by the fiscal year 2031. This strategy aims to ensure long-term fiscal stability and sustainability.

Key Budget Figures at a Glance

Market Borrowing and Bond Market Impact

To finance its fiscal deficit, the Centre's net borrowing for FY27 is pegged at ₹11.73 lakh crore, with gross market borrowing estimated at ₹17.2 lakh crore. According to Madan Sabnavis, Chief Economist at Bank of Baroda, keeping the borrowing program at levels similar to the previous year should provide stability to the bond markets. He noted that stable borrowing could keep bond yields in check and give the Reserve Bank of India more flexibility in making decisions on the repo rate without concerns about the government's borrowing pressure.

Expert Analysis on Fiscal Strategy

Analysts have noted the moderated pace of fiscal consolidation. D.K. Srivastava, Chief Policy Advisor at EY India, pointed out that the reduction in the fiscal deficit is only 10 basis points in FY27, compared to a 40-basis-point reduction in the previous year. He attributed this slowdown to a decline in the government's gross tax revenues to GDP ratio, which is projected to fall from 11.4% in FY26 to 11.2% in FY27. This trend translates into a relative fall in the government's non-debt receipts compared to the size of the economy. Despite this, the overall fiscal numbers have been viewed as stable and targeted.

Conclusion

The Union Budget for FY27 charts a course of continued public investment-led growth while adhering to a path of gradual fiscal discipline. The government's strategy relies on a significant capex outlay to boost the economy, funded by a mix of modest tax growth and higher non-tax revenues from dividends and disinvestment. The fiscal deficit and debt targets reflect a cautious approach aimed at ensuring macroeconomic stability. The stable borrowing program is expected to support the bond market, providing a predictable financial environment for the upcoming fiscal year.