Budget 2026 conservative, focuses on fiscal stability: BofA Securities

BofA Securities said the modest fiscal consolidation rests on "very realistic" revenue and expenditure assumptions, adding to the credibility of the Ministry of Finance

The Union Budget 2026–27 is overall a conservative Budget which focuses on fiscal stability, attracting foreign investment and improving ease of taxation, global brokerage BofA Securities said on Sunday. 

The brokerage said that in the past few years, India’s fiscal consolidation has been more “contractionary” than what the economy’s underlying momentum would indicate, with the deficit declining significantly from 9.2 per cent of gross domestic product (GDP) in the financial year 2020–21 (FY21) to an estimated 4.4 per cent in FY26.

 

“However, from FY27 onwards, this pace of consolidation will largely be geared towards stability, and will be driven by debt sustainability, rather than just a pre-determined path. This would also imply that the role of nominal GDP growth and interest rates will become much more important, in our view,” it added. 

 

 

It stated that the modest fiscal consolidation relies on “very realistic” revenue and expenditure assumptions, adding to the credibility of the Ministry of Finance. The fiscal deficit estimate is backed by a debt projection of 55.6 per cent of GDP. Net borrowing for the year is set at ₹11.7 trillion, while gross borrowings are pegged at ₹17.2 trillion, factoring in planned bond switches.

 

“We believe the government is being conservative in its projections on the debt front, and may end up overshooting the debt target, especially with a new GDP series expected by end February,” it added.

 

Budget 2026: Capital expenditure remains subdued, says BofA

Government capital expenditure plans appear underwhelming despite a nominal increase in outlays, as the spending ratio remains unchanged and fiscal priorities shift towards revenue commitments, according to BofA Securities.

 

Although the Centre had initially budgeted an 11.5 per cent rise in capital expenditure for FY26, it marginally lowered the target to ₹11 trillion, keeping it steady at 3.1 per cent of GDP, a pace BofA noted is slower than historical expansion phases. For FY27, the government has pegged capital expenditure at ₹12.2 trillion, again holding the ratio at 3.1 per cent of GDP.

 

“Given recent experience, the government is pegging the capital expenditure of ₹12.2 trillion and is keeping the expenditure commitment to 3.1 per cent of GDP, to ensure the broad trajectory of growth remains balanced between revenue expenditure commitments in light of upcoming pay commission, which will have an impact on revenue expenditure commitments of the government from next fiscal year,” the brokerage said.