Perspective on Union Budget 2026 by Ms Madhavi Arora, Chief Economist, Emkay Global Financial Services
Below the Perspective on Union Budget 2026 by Ms Madhavi Arora, Chief Economist, Emkay Global Financial Services
* With shift towards debt/GDP as a fiscal anchor (debt aimed to reduce to ~50% by FY31 from ~56.1%/55.6% in FY26/FY27), FY27 GFD/GDP is targeted at 4.3% in line with our expectations.
This anchor shift would imply mild tweaks in Centre’s FD ahead would be sufficient ahead, assuming stable Nom GDP growth of ~10.5% in coming yrs (FY27BE:10%). States will not enjoy that natural debt reduction lever at 3% or above FD/GDP.
Primary deficit will become an important variable to understand core fiscal stance. FY27 PD/GDP is down mildly to 0.74% from 0.8% in FY26.
* Centre’s ex-interest revex/GDP falls further to 6.9% in FY27 vs 7.3% (4.9% growth vs 4.4% in FY26RE). Education, health outdo rural devt in revex growth.
* Centre’s capex/revex ratio grows higher to 0.3x vs 0.28x, FY27 capex/GDP has again crossed 3.1% (FY26RE:3.1%).
FY27 Capex growth of 11.5% is led by higher growth in defence (17.6%), rail (10.3%) and road infra (8.1%). Capex loans to states go up further to 0.6% of GDP at Rs2.7tn vs Rs1.7tn.
Govt is budgeting nearly 98% of budgeted FY26, implying negative 4QFY26 growth of -16% vs YTD +15% growth. Dec capex was down 25% YoY.
Inc. IEBR, Centre’s capex is up ~11.5% YoY, up from a low base of sub- 4% growth in FY26*.
* Amid low tax buoyancy of 0.8x, gross taxes budgeted to grow at ~8.0%, with gross tax/GDP easing to 11.2%, led by negative GST tax growth. Corp and Income tax seen steady at 11%/11.7%.
The tax math looks largely credible, while no new revenue moving sweeteners on taxes, as expected.
Capital gains tax was left largely untouched, in line with our expectations. STT on derivatives, however, were sharply hiked. This could hurt volumes and market liquidity, though the retail segment has been resilient to these hikes earlier.
RBI dividend is expected to stay solid surpassing last year (RBI+PSU taken at 3.2tn), Disinvestment+others at Rs800bn assumes IDBI disinv and possible LIC stake sale.
* Net dated borrowing will be mildly higher than FY26 at Rs 11.7tn (Gross Rs17.2tn), with small savings likely to fund ~23% of GFD. Net T-bill at Rs1.3tn.
This no. could mildly reduce if govt does higher buyback in 4QFY26 vs current. Some technical adjustments in “others” category has led to more dependence on mkt borrowings
* The policy focus continues to be on improving *productivity of factors of production, *deregulations, sectoral ease of doing business. The reformist agenda continues with some incentives for Electronics Component boost, data centre, MSME export and credit supports, Inverted duty fixes, etc.
* We maintain boosting asset sales (via functional infra monetization, disinvestment, and strategic sales) and better resource allocation are the least growth-impinging ways of fiscal consolidation.
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