Budget 2026: Fiscal consolidation in focus as India targets leaner deficit

The next budget, like earlier budgets, will be a continuation of achieving Viksit Bharat goals of growth, inclusion and sustainability, EAC-PM chairman S Mahendra Dev told ET Bureau’s Yogima Seth.

“The government plans to continue on the path of fiscal consolidation.”

In 2021-22 budget, it announced its intention to reach a fiscal deficit level below 4.5% of GDP by 2025-26. The country is well on track to achieve this, he said. “Similarly, the Central debt is on a declining path… the government plans to stick to the goal of a debt-to-GDP ratio of 56.1% in FY26.”

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“India’s current macroeconomic position has been described as a Goldilocks zone. Real GDP growth has strengthened consistently over the last four quarters, and GDP growth is expected to be between 7% and 7.5% in FY26. It underscores the economy’s resilience even amid persistent global uncertainties and a challenging external environment.”

The upcoming budget is expected to continue prioritising public capital expenditure, which can catalyse private investment.

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Earlier this month, the RBI Monetary Policy Committee cut the policy repo rate by 25 basis points to 5.25%, bringing the total reduction to 125 basis points in 2025.

This, along with softer retail inflation — it averaged 2.3% in 2025 until November compared with 4.9% in the same period last year — are expected to support demand and encourage investment.

Together, these factors are likely to underpin economic growth in 2026, which is projected at around 7%, economists noted.

In September, the GST Council approved a two-slab structure of 5% and 18%, reducing rates on various household items.

Economists earlier told ET Bureau that improving capacity utilisation is likely to support a pickup in private capex, with early signs of this emerging. Capacity utilisation rose to around 75%, indicating steady economic activity.

According to a CareEdge Ratings analysis of 1,899 listed non-financial firms, private capital expenditure rose 11% to ₹9.4 lakh crore in FY25 from the year before. Order books of a representative sample of capital goods companies surged 20.7% during the year.

CMIE data show new project announcements rose to ₹14.6 lakh crore in the first half of FY26, or the six months to September, from ₹7.8 lakh crore in the same period a year ago.