The Union Budget 2026–27 will be framed against an increasingly fragile global backdrop marked by geopolitical flux, volatile financial markets and a sharp rally in commodities, but India is expected to retain its macro stability with a calibrated fiscal strategy and sustained public investment, according to a pre-Budget assessment by State Bank of India Research.SBI Research said the Budget comes at a time when “the domino effects of a new emerging order of realpolitik” are cascading across global markets, with stretched equity and bond valuations reflecting “misplaced trust”, even as a risk-on rally gathers pace in commodities led by precious metals. A key uncertainty, it cautioned, is whether crude oil prices could break out of what it described as an “artificially managed supply glut”.Against this backdrop, SBI Research expects nominal GDP growth for Budget calculations at around 10.5–11% in FY27, noting that rising international commodity prices could percolate into wholesale inflation. Based on this, the fiscal deficit is projected at about 4.2% of GDP, although the bank flagged that the new GDP series could alter fiscal arithmetic.“A bit slower nominal growth may hurt tax revenues in FY27, requiring better expenditure planning,” the report said, adding that GST rationalisation and possible reductions in marginal personal income tax rates could help cushion pressures on the tax base.
Borrowing pressures, RBI role
On government borrowing, SBI Research expects net central borrowing at Rs 11.7 trillion in FY27, alongside repayments of Rs 4.87 trillion, while state gross borrowings may rise to Rs 12.6 trillion with repayments of Rs 4.2 trillion.“RBI would need to do much more OMOs to balance the borrowing requirements,” the report said, underlining the growing role of liquidity management as market borrowings expand.Over the medium term, SBI estimates gross market borrowing of Rs 93.8–95.2 lakh crore over the next five fiscals, averaging Rs 18–19 lakh crore annually, significantly higher than the current run rate. This, it said, makes it “imperative that government also looks at borrowings through alternative and enhancing sources like small savings”.
Capex to remain the fulcrum
Public investment is expected to remain the centrepiece of the growth strategy. SBI Research said government capital expenditure may cross Rs 12 lakh crore in FY27, implying a year-on-year increase of about 10%.While tax revenues are likely to post only modest growth and non-tax revenues may remain flat, the bank believes continued capex will help sustain domestic demand and crowd in private investment.
Debt consolidation and state finances
SBI Research also pointed to the Centre’s medium-term fiscal consolidation path, under which central government debt-to-GDP is projected to decline from 57.1% in FY25 to 56.1% in FY26, with an explicit commitment to place debt on a declining trajectory towards about 50% of GDP by March 2031, in the absence of major exogenous shocks.It said a similar framework needs to be institutionalised at the state level, noting that 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 report said, adding that this could find emphasis in the Budget speech.
Savings, insurance and structural reforms
On taxation, SBI Research pushed reforms to boost household financial savings, including parity in tax treatment of interest on deposits with capital gains, a shorter lock-in for tax-saving fixed deposits, and a higher TDS threshold on savings account interest.The report also called for a “plethora of reforms” in the insurance and pensions sector to improve penetration. It flagged concerns around health insurance claims, citing IRDAI data that showed around 69% of complaints in FY25 were related to claims, and said citizens often struggle to receive timely settlements.With climate risks rising, SBI Research highlighted that India faces a protection gap of nearly 93% for natural disasters between 1991 and 2025, making a strong case for a public–private disaster risk pool involving insurers.It also pushed for a transition to a risk-based capital framework in insurance, moving away from “static, formula-driven, one-size-fits-all solvency margins” to a more dynamic, risk-aligned approach.Despite the turbulence in global markets, SBI Research said India continues to remain the bright spot, supported by strong macro fundamentals. The challenge for Budget 2026–27, it noted, will be to balance fiscal consolidation with growth imperatives while navigating an uncertain global environment.
