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India's FY27 Capex to Surge Past ₹12 Lakh Crore, Fiscal Deficit at 4.2%

SBI Research projects the Indian government's capital expenditure will exceed ₹12 lakh crore in the 2026-27 financial year, marking a 10% annual increase. The report forecasts the fiscal deficit at 4.2% of GDP, supported by an expected nominal GDP growth of 10.5-11%. It highlights significant central and state borrowing requirements, suggesting reforms in the State Development Loan (SDL) market. The analysis calls for better expenditure planning and medium-term debt trajectories for states to manage the large borrowing landscape.

Key Points: FY27 Govt Capex Over ₹12 Lakh Cr, Fiscal Deficit 4.2%: SBI

  • Capex may cross ₹12L cr in FY27
  • Fiscal deficit seen at 4.2% of GDP
  • Nominal GDP growth forecast at 10.5-11%
  • Central & state borrowings to remain high
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Govt capex may cross Rs 12 lakh crore in FY27, fiscal deficit likely at 4.2 pc of GDP: SBI

SBI Research forecasts India's capital expenditure exceeding ₹12 lakh crore in FY27 with a fiscal deficit of 4.2% of GDP, amid borrowing and reform plans.

"GST rationalisation and reduction in marginal tax rates... is expected to cushion the impact - Dr. Soumya Kanti Ghosh"

New Delhi, Jan 26

India continues to remain the bright spot supported by its strong macro fundamentals and the government capex may cross Rs 12 lakh crore in FY27, a year-on-year growth of 10 per cent, an SBI Research report said on Monday.

The nominal GDP growth relevant for Budget math is expected at 10.5-11 per cent with the uptrend in global commodity prices may percolate in a higher WPI.

A bit slower nominal growth may hurt tax revenues in FY27, requiring better expenditure planning. However, GST rationalisation and reduction in marginal tax rates for personal income tax is expected to cushion the impact of sluggishness in tax base, said Dr. Soumya Kanti Ghosh, Group Chief Economic Advisor, State Bank of India.

Based on the above nominal forecast, fiscal deficit is expected to be at 4.2 per cent of GDP for FY27. The cost of borrowing from the government is expected at 6.8-7.0 per cent for FY27 with risk evenly balanced, Ghosh added.

Estimated net Central borrowing for FY27 is expected at Rs 11.7 trillion (around 70 per cent of FD) and repayment of Rs 4.60 trillion including Rs 1 lakh crore expected buyback and Rs 1.5 trillion estimated switches while State gross borrowings may come at Rs 12.6 trillion and repayment of Rs 4.2 trillion.

"There is a possibility of scaling down SDLs and hence net state borrowings through meaningful reforms and net centre borrowings through higher borrowing through T-Bill issuance. With such large borrowings, the Government and the RBI may also have to work together to bring meaningful reforms in the SDL market," said the report.

The presentation of the Union Budget 2026 comes against the domino effects of a new emerging order of realpolitik, still largely opaque, yet frightening, cascading down the annals of global financial markets with misplaced trust being the lynchpin of rout across stretched equities and bond markets.

The report further said that as states account for a significant share of general government debt, state budgets should explicitly chart medium-term, preferably scenario-based, debt-to-GSDP trajectories, aligned with realistic growth assumptions and development needs, rather than relying solely on annual deficit targets. The Union Budget may highlight this.

- IANS

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Reader Comments

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Shreya B
While the capex number is impressive, the fiscal deficit at 4.2% is still a concern. Borrowing costs of 6.8-7% are high. We need to see more details on how tax rationalisation will work. The focus should be on sustainable growth, not just big numbers.
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Arjun K
The report rightly points out the need for states to have a medium-term debt plan. Often, state finances are the weak link. Centre and states must work together for fiscal discipline. Good that SBI Research is highlighting this.
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Priya S
Reduction in marginal income tax rates would be a huge relief for the middle class! Our disposable income has been squeezed by inflation. Hope the budget delivers on this promise. 🤞
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Vikram M
All this borrowing—central and state combined is massive. ₹11.7 lakh crore + ₹12.6 lakh crore... who is going to buy all these bonds? Hope it doesn't crowd out private investment. The RBI has a tough job managing this.
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Michael C
Interesting analysis from SBI. The mention of "misplaced trust" in global markets is key. India needs to be an island of stability. Strong capex is one way to ensure domestic demand remains robust even if external conditions worsen.

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