2025-26 was driven by both fiscal and monetary stimulus amid mounting external headwinds.Also read: Budget 2026: Can trade deals and a manufacturing shift make India a global export hub?
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.
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. 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.Also read: Budget 2026 could drive a power shift in India’s semiconductor push
“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.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.