India’s medium-term macro outlook remains constructive as the Union Budget for FY27 signals continuity in capital expenditure alongside a softer fiscal drag, according to a report by Goldman Sachs.
Goldman Sachs said the government has stayed on the fiscal consolidation path, announcing a further 10bp reduction in the fiscal deficit to 4.3% of GDP in FY27, adding that the net impact of fiscal drag on growth in FY27 will be smaller than in FY26. .The report notes “the government stayed on the fiscal consolidation path, announcing a further 10bp reduction in the fiscal deficit to 4.3% of GDP in FY27”
On growth support, the report highlighted that the public capex target was retained at 3.1% of GDP, with allocations tilted toward infrastructure-linked sectors. It said the budget signalled intent to sustain infrastructure investment, with robust allocation towards defence, railways and roads.
“We view this as a constructive signal for continued infrastructure investment, though execution has somewhat undershot budgeted capex in recent years,” said Goldman Sachs.
Defence spending has been prioritised, with capital expenditure budgeted to grow by around 17% yoy, while transfers to states for capital expenditure are budgeted to increase by ~33% yoy, which the report described as a constructive signal for investment-led growth.The report added that despite consolidation, net market borrowing remains elevated, but expects policy support, stating that “we think the RBI is likely to remain a net buyer in FY27, to partly offset the Rupee liquidity drain from FX sales.”