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Budget 2026: Nomura Criticizes Slower Fiscal Consolidation, High Borrowings

Investment bank Nomura has expressed disappointment with the Union Budget's slower pace of fiscal consolidation and higher-than-expected market borrowings for 2026-27. While it views the continued focus on capital expenditure and manufacturing positively, it notes the gross borrowing figure was above market expectations. The government aims to lower the debt-to-GDP ratio to 55.6%, a pace Nomura suggests will need to accelerate in subsequent years. Despite these fiscal concerns, Nomura maintains a credible outlook on the budget assumptions and forecasts a cyclical recovery with 7.1% GDP growth.

Key Points: Budget 2026: Nomura on Fiscal Deficit, Borrowings & Growth

  • Fiscal deficit target 4.3% for FY27
  • Gross market borrowings up 17.2%
  • Debt-to-GDP target 55.6%
  • Capex maintained at 3.1% of GDP
  • Nomura forecasts 7.1% GDP growth
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Slower fiscal consolidation pace, higher market borrowings in Budget are disappointing: Nomura

Nomura reacts to Union Budget 2026-27, calling slower fiscal consolidation & high market borrowings disappointing, despite capex focus.

"the slower-than-expected consolidation trajectory is disappointing - Nomura"

New Delhi, February 2

The Union Budget's continued focus on capital expenditure and manufacturing is a positive, but a slower pace of fiscal consolidation and higher market borrowings are disappointing, according to investment bank Nomura.

Presenting the Union Budget, Finance Minister Nirmala Sitharaman has pegged the fiscal deficit at 4.3 per cent of GDP for 2026-27, down from the 4.4 per cent target for 2025-26.

The difference between total revenue and total expenditure of the government is termed the fiscal deficit. It indicates the total borrowings the government may need.

The government had intended to bring the fiscal deficit below 4.5 per cent of GDP by the financial year 2025-26 and is on track to achieve it.

Nomura, in a report, expected a 4.2 per cent fiscal deficit projection for 2026-27.

To finance the fiscal deficit, the net market borrowings from dated securities are estimated at Rs 11.7 lakh crore. The balance financing is expected to come from small savings and other sources. Gross market borrowings are estimated at Rs 17.2 lakh crore for 2026-27, reportedly up 17.2 per cent year-on-year.

According to Nomura, gross borrowing was above market expectations and marginally below its own expectations.

The debt-to-GDP ratio is estimated to be 55.6 per cent of GDP in BE 2026-27, compared to 56.1 per cent of GDP in RE 2025-26. A declining debt-to-GDP ratio will gradually free up resources for priority-sector expenditure by reducing interest payments, the government said.

"While the revised GDP series at end-February could alter these ratios, the slower-than-expected consolidation trajectory is disappointing," Nomura has asserted.

"FY27 marks the first year when fiscal rules will shift from targetting the fiscal deficit to targetting central government debt, with the aim to lower it from 56.1 per cent of GDP in FY26 to 50 per cent (+/- 1%) by FY31. In year one (FY27), the government aims to lower its debt to 55.6% of GDP, which is higher than expected (Nomura: 55 per cent) and suggests the pace of debt consolidation will need to be more aggressive over the remaining four years."

On tax and expenditure front, no major changes were announced on direct taxes, customs duties were rationalised, and the Securities Transaction Tax on derivatives was raised to discourage speculation, which has weighed on equity markets.

On expenditure, public capex is proposed to be maintained at 3.1 per cent of GDP in 2026-27, up 11.5 per cent year-on-year.

The government announced a manufacturing push for electronics components, containers, textiles, and sports goods; the establishment of a rare earth corridor; a 17 per cent increase in defence capex; and tax holidays for foreign cloud service providers using Indian data centres.

Nomura sees the overall budget assumptions as credible, and estimates a fiscal impulse of 0.6 percentage point in 2026-27, implying a slight positive boost to growth.

"We expect a cyclical recovery in India, with GDP growth closer to trend at 7.1 per cent in 2026-27," Nomura said.

- ANI

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Reader Comments

P
Priya S
I appreciate the push for electronics and textiles manufacturing! 🇮🇳 This will create so many opportunities for our youth. The rare earth corridor is also a strategic move. A bit more borrowing for nation-building is acceptable if it's spent wisely on infrastructure.
R
Rohit P
Nomura has a point. The debt-to-GDP target of 50% by FY31 seems ambitious if we start at 55.6% in FY27. The next four years will require very aggressive consolidation. Hope the growth projections of 7.1% materialize to support this.
S
Sarah B
As an investor, the higher STT on derivatives is a direct hit. It's meant to curb speculation, but it also increases the cost of hedging for genuine market participants. The government should reconsider this.
V
Vikram M
The 17% increase in defence capex is crucial for our borders. National security cannot be compromised. If a slightly slower fiscal path is needed to fund this and critical infrastructure, I support it. Jai Hind!
K
Kavya N
It's a mixed bag. Good for manufacturing and jobs, but the common person was hoping for some relief in direct taxes. With inflation still a concern, more disposable income in hands would have boosted demand. Hope the growth trickles down soon.

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