Budget 2026: Reforms to continue with restraint, says report
New Delhi, Jan 20
The wave of reforms are likely to feature prominently in the Union Budget 2026-27, an HSBC report said on Tuesday, adding that given a slew of announcements in recent months, the government is in a mood for further reforms.
The central government budget will be presented on February 1, followed closely by the RBI policy meeting on February 6.
"We believe the government will focus on two pillars during such time - restraint and reforms," the report mentioned.
The report expects the government to meet its FY26 fiscal deficit target of 4.4 per cent of GDP. The tax rate-cut led fall in revenues will likely be partly filled by strong RBI and PSU dividend, and partly by lower current expenditure.
"We expect that pruning of schemes will help the government lower its expenditure in FY27, and we forecast a fiscal deficit of 4.2% of GDP," the HSBC report said.
It also expects an unchanged net borrowing bill of Rs 11.5 lakh crore in FY27. A high redemption bill (despite assumption of some switches) would bump up gross borrowing (to Rs 16 lakh crore).
"But growth in borrowing would still be below nominal GDP growth, making it manageable. The fiscal impulse will likely be near-neutral despite fiscal consolidation, helped by a lower quantum of consolidation and elevated receipts from RBI dividends again," the report noted.
This quantum of consolidation is on the right path to meet the central government's public debt target for FY31.
However, state governments may see their public debt ratios rise for the next few years, as they do not have a similar consolidation path.
Thankfully, even after including states, overall gross market borrowing may grow slightly lower than nominal GDP growth (versus FY26, when growth in borrowing far exceeded NGDP), said the report.
On the domestic front, "we expect the state and centre deregulation drive to continue, manufacturing incentives for small firms, capex diversification to favour capex loans to states, and some rationalisation in subsidy and centrally sponsored schemes".
"On the external front, we expect a significant exercise to rationalise customs duties, continued withdrawals of non-tariff barriers, and more openness to FDI across sectors," said the report.
— IANS
Reader Comments
Meeting the fiscal deficit target is impressive, especially with tax cuts. The RBI dividend is a big help! Hope the government uses the saved money for more infrastructure projects. Manufacturing incentives for small firms is a great move for job creation. 👍
The state debt issue is worrying. The centre is on a consolidation path, but states are not. This could create problems down the line. Need more cooperative federalism to ensure all governments are fiscally responsible.
Rationalising customs duties and removing non-tariff barriers is crucial for 'Make in India' to compete globally. More openness to FDI is also welcome. This should help bring in technology and create quality jobs. The external front reforms sound promising.
Borrowing of 16 lakh crore sounds massive! 😳 But if it's growing slower than the economy, maybe it's manageable. Just hope this doesn't lead to higher interest rates for home and car loans for common people like us.
Capex diversification to favour loans to states is a smart move. It pushes infrastructure development to where it's needed most at the local level. Hope states have the capacity to use these funds effectively without corruption.
Restraint and reforms
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.