Slower fiscal consolidation pace, higher market borrowings in Budget are disappointing: 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.