Budget 2026-27: Govt May Hike Capex 10% to Rs 12 Lakh Crore, Says SBI

This would enable the government to step up investments in big-ticket infrastructure projects in the highways, railways, ports and power sectors to boost growth and jobs in the economy.

The FY27 budget comes against the backdrop of a global economy ravaged by heightened uncertainty and fragmentation, so it is important that India continues to be on the path of fiscal prudence as global debt threatens to rip apart the existing order. Remarkably, the country's recovery post-pandemic is better than what it was post global financial crisis, the report states.

It expects a modest growth in tax revenue and flat growth in non-tax revenue for FY 27. The nominal GDP growth relevant for Budget math is expected at around 10.5 per cent-11 per cent, as a surge in international commodity prices may percolate in WPI inflation. Based on that, the fiscal deficit is expected to be at around 4.2 per cent of GDP for FY27 -- though the new GDP series may alter the fiscal arithmetic, the report further states.

Borrowings may give some positive surprise as net Central borrowing for FY27 is expected at Rs 11.7 trillion and repayment of Rs 4.87 trillion, while state gross borrowings may come at Rs 12.6 trillion and repayment of Rs 4.2 trillion. The Reserve Bank of India would need to do much more open market operations to balance the borrowing requirements, according to the SBI report.

The SBI report has also recommended that the Budget should adopt measures to boost financial savings in the economy. These include tax treatment for interest on deposits at par with long term capital gains (LTCG) and short-term capital gains (STCG), a lock-in period for tax savings FDs should be made equal to ELSS of mutual funds (3 years) and an increase in the interest threshold on savings in bank deposits for TDS.

As regards indirect taxes, the report recommends that the definition of input service distributor should be amended to bring better clarity and reduce litigation, and GST on TDS should not apply to banking services.

Besides, it has also underlined the need for a plethora of reforms in the insurance and pensions sector to increase penetration.

The report also suggests 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, the report added

- IANS