India's FY26 Budget: A Balancing Act

The FY26 Budget in India is anticipated to focus on fiscal consolidation while enhancing consumption demand and capital expenditure. India Ratings and Research emphasizes the need for fiscal credibility, highlighting a potential GDP growth of 10.2% in FY26, aiming for a fiscal deficit below 4.5%.

The impending FY26 Budget is set to address fiscal consolidation alongside boosting consumption and capex, according to India Ratings and Research (Ind-Ra). The agency underscores the importance of maintaining fiscal credibility to attract investments and manage inflation, which has hampered consumption demand.

The Union Budget of FY22 laid out a fiscal consolidation path up to FY26, with a goal to reduce the fiscal deficit to 4.5% of GDP. Implementing this roadmap, despite recent growth slowdowns, remains crucial for fostering investor confidence and stabilizing the economy.

Ind-Ra foresees that the government will sustain infrastructure spending to alleviate supply-side constraints, expecting a fiscal deficit target below 4.5% for FY26. The projected nominal GDP growth of 10.2% is expected to lower the debt-to-GDP ratio, reflecting improved fiscal health.

(With inputs from agencies.)