Budget should focus on mix of fiscal consolidation, boost to capex: Ind-Ra

India Ratings and Research (Ind-Ra) on Monday said the FY26 Budget should focus on a mix of fiscal consolidation roadmap, while boosting consumption demand, and capex spending.

The Centre in the FY22 Union Budget had provided a fiscal consolidation glide path till FY26 according to which the fiscal deficit will be brought down to 4.5 per cent of the GDP. 

"By adhering to the outlined targets, it builds up fiscal credibility which is important for various stakeholders especially investors in gauging the fiscal health of the economy. It also helps in curtailing inflation which has been sticky during FY24-FY25.

"This is one of the reasons for weak consumption demand in the economy which has kept private investments in wait-and-watch mode. Thus, measures to stimulate consumption demand in the economy through income tax relief may be announced in the forthcoming budget," Ind-Ra said.

Against the backdrop of the past three quarters of growth slowdown, Ind-Ra expects the FY26 Union Budget to focus on a mix of the following short- and long-term agendas -- a fiscal consolidation roadmap, a revised fiscal roadmap, boost to consumption demand, and boost to infrastructure and manufacturing capex, it said in a statement.

After FY22, the Union government has been focusing on the infrastructure sector to help correct supply-side constraints.

Ind-Ra expects this to remain so in the 2025-26 Budget, which will be unveiled on February 1.

A revised fiscal consolidation roadmap starting FY27 is crucial as high deficit and debt levels would remain a highlight of Indian public finances.

"Notwithstanding the growth slowdown in FY25 and the likely minor growth improvement in FY26, Ind-Ra expects the government to adhere to its fiscal consolidation roadmap provided in the medium-term fiscal policy-cum-fiscal strategy statement," it said in a statement.

Ind-Ra expects nominal GDP growth in FY26 to be 10.2 per cent.

"Ind-Ra believes that the government may go for a fiscal deficit target of below 4.5 per cent in FY26," Ind-Ra Chief Economist and Head Public Finance Devendra Kumar Pant said.

Ind-Ra expects the central government debt to decline to 56.3 per cent of the GDP in FY26, from 56.8 per cent estimated in the Budget for the current fiscal year. Ind-Ra forecast central government debt at 57.2 per cent of the GDP in FY25.

The major reason for the higher forecasted debt/GDP in FY25 is the expectation of a lower GDP than the Budget assumption.

The FY25 Budget estimated FY25 GDP at Rs 326.35 trillion, whereas NSO in its first advanced estimate pegged it at Rs 324.11 trillion.

An expected 10.2 per cent year-on-year increase in nominal GDP in FY26 and a lower fiscal deficit both in absolute and percentage terms would translate to a lower leverage, it said.

"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," Ind-Ra said.