Budget 2026 reinforces stability as growth strategy stays on course
Budget 2026 retains fiscal discipline, raises capex and borrowing, and outlines reforms to support infrastructure, manufacturing, and long-term economic growth
 "Budget 2026 reinforces stability as growth strategy stays on course")
Budget 2026 outlines a financial blueprint for long term growth and development and provides an immense amount of continuity and stability. This fits in well into the budgetary exercises of the past years as well. The objective is to enhance productivity and competitiveness and build resilience in the light of the volatile global conditions.
The fiscal deficit target for 2026-27 is placed at 4.30 per cent which is lower by 10 basis points from the 2025-26 fiscal deficit target of 4.40 per cent. Therefore, the fiscal glide path remains intact. Bringing public debt close to 50 per cent of GDP by 2031, a lower debt to GDP, is the long-term objective being pursued as far as government finance is concerned. The state of finances should offer comfort to investors, especially overseas investors. The nominal GDP growth is assumed at 10 per cent for 2026-27. This takes into account some pressure on the GDP growth as also moderate inflation in the coming year. But this has consequences for the government's resource mobilisation efforts especially as far as tax revenues are concerned.
The assumption on nominal GDP is realistic. The government borrowing program is much higher compared to 2025-26. The gross borrowings is ₹17.20 trillion in FY27 as against ₹14.72 trillion in 2025-26. But on a net basis, the rise in borrowings is higher than that of last year but not significant. The net borrowings for 2025-26 is ₹11.43 trillion whereas it is ₹11.70 trillion for 2026-27. On a gross basis, the borrowing program is 16 per cent higher and the net borrowing is 3 per cent higher compared to the last budget numbers. The pressure on fixed income markets on account of the borrowing program will continue to be there in the next year too, and this may push the long-end yields higher.
The state government borrowings would also add to this given the fact that, for FY25-26, the amounts mobilised so far has been ₹8.50 trillion. The public capital expenditure is at its highest level with a provision of ₹12.20 trillion. This is up from ₹11.10 trillion in 2025-26.
This is something which the market has been eagerly looking forward to, mainly because of its positive impact on Infrastructure, power, defence, railways etc. It is interesting to see that this amount is higher than the net government borrowings for the year. This will have a positive impact on numerous downstream companies like it has been the case in the last two to three years.
The accent on scaling up of manufacturing, the committee to look into the possibility of banking sector reforms, setting up of an Infrastructure Risk Guarantee Fund to strengthen the confidence of private developers regarding risks during infrastructure development and construction phase, and the decision to accelerate recycling of significant real estate assets of CPSEs through the setting up of dedicated REITs are some of the important measures announced. A number of measures on the infrastructure front like the Freight Corridors, 20 new National Waterways, Developing City Economic Regions, Seven High-Speed Rail corridors are all measures that will help promote growth. Above all, the budget addresses effectively the needs of some of the sectors that are adversely affected by the tariff related developments.
Budget 2026 effectively addresses the issues of the present as well as the future.
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Disclaimer: Joseph Thomas, Head Of Research, Emkay Wealth Management. Views expressed are his own.