An ICICI Bank pre-Budget report says buoyant revenues give the government room for steady capital expenditure at 3.1% of GDP while continuing fiscal consolidation. It suggests spending cuts may be needed to meet the 2025-26 deficit target.
Buoyant revenue streams give the government room to keep capital expenditure spending steady, at about 3.1 per cent of GDP, while continuing on the path of fiscal consolidation, according to a pre-Budget report by ICICI Bank Global Markets.
Fiscal Challenges in 2025-26
2025-26 was driven by both fiscal and monetary stimulus amid mounting external headwinds. On the fiscal front, both income and GST stimulus totalled 0.9 per cent of GDP, as per the report. This has affected tax collections even as private demand has picked up. Hence, to achieve a fiscal deficit of 4.4 per cent in 2025-26, a cutback in spending may be needed to meet the fiscal target, it has asserted.
Positive Revenue Outlook and Capex
On a low base and rising demand, the revenue collection outlook for 2026-27 is much more buoyant, with non-tax revenues expected to remain elevated. “This gives government room to keep capex at 3.1% of GDP while continuing on the path of consolidation,” the report read.
Budget Recommendations: Ease of Doing Business
A capex expenditure worth Rs 11.21 lakh crore (or 3.1 per cent of GDP) was earmarked in 2025-26 Union Budget, rising year-on-year. Against that backdrop, it suggested that the focus of the Union Budget should be on Ease of Doing Business and Deregulation (aligning customs), along with incentives to crowd in private investment, particularly manufacturing.
“FY27 Union Budget is likely to act an enabler to capitalise on stimulus given by focusing on increasing investments in the economy. For the same, we expect theme of the Budget to be Ease of Doing Business, promoting foreign inflows, deregulation and rationalisating custom duties and processes,” it read.
Fiscal Deficit Target for 2026-27
In 2026-27, it expects a fiscal deficit target of 4.2 per cent of GDP. As has been the convention, the Union Budget for 2026-27 will be presented in the Parliament on February 1, 2026.
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