The subcontinent enters the Union Budget 2026 with robust economic momentum, supported by strong GDP expansion, very low inflation and healthy foreign exchange reserves.
Recent data show India’s economy growing faster than earlier projections, inflation staying well below the Reserve Bank of India’s comfort zone and macro-financial stability strengthening ahead of crucial policy decisions in 2026.
Budget 2026: All you need to know about India’s GDP
India’s real GDP has shown strong performance in the first half of FY 2025-26. Government estimates report GDP growth at 8.2% in the second quarter, with 8.0% expansion in H1 (April-September) compared to the year before.
The Reserve Bank of India has raised its full-year GDP forecast for FY 2025-26 to 7.3%, up from earlier projections, driven by resilient domestic demand, consumption growth and policy support.
Growth was broad-based across sectors in the first two quarters, with the services sector and industry leading expansions while agriculture contributed steadily to output.
Union Budget: All you need to know about India’s inflation
Retail inflation has remained low for most of FY26. Consumer Price Index (CPI) inflation rose slightly to 0.71% in November 2025 from record lows earlier in the year, but stayed well below the RBI’s 4% target.
The central bank now projects average inflation at about 2.0% for FY 2025-26, signalling a benign price environment that supports domestic demand and leaves room for monetary easing.
Also Read: Budget 2026- How India’s inflation evolved over the past year
Food price movements and GST rate rationalisations have been key factors influencing the low CPI prints, even as core inflation shows some stickiness.
Budget: All you need to know about India’s fiscal deficit
Fiscal deficit shows how much the government’s spending exceeds its revenue and is a key measure of financial health.
For FY 2025-26, the government has set the fiscal deficit target at 4.4% of GDP, aiming to continue fiscal consolidation while supporting growth. This target translates to about ₹15.69 lakh crore in absolute terms, based on Budget 2025 estimates.
Data from the Controller General of Accounts (CGA) indicate that the fiscal gap has widened through the year as capital expenditure increased sharply. By October 2025, the fiscal deficit had reached ₹8.25 lakh crore, or 52.6% of the annual Budget estimate, reflecting higher capex spending relative to revenues.
Monthly fiscal data for September showed the deficit at about ₹5.73 lakh crore, equivalent to 36.5% of the FY26 target, while earlier August figures reported a ₹5.98 lakh crore gap, or 38.1% of the annual estimate.
Finance Minister Nirmala Sitharaman has reiterated the government’s confidence in meeting the fiscal deficit target of 4.4% of GDP by March 2026, noting ongoing revenue collection and expenditure management.
2026 Budget: All you need to know about trade, exports and reserves
India’s trade deficit widened significantly in April-October 2025, reaching $196.82 billion, driven by a sharper rise in imports than exports. Exports in October fell by nearly 12%, while imports increased by over 16% year-on-year.
Despite trade challenges, India’s foreign exchange reserves rose by $4.36 billion to $693.32 billion in the week ending December 19, 2025, reflecting strong external buffers and RBI interventions to maintain orderly markets.
Union Budget: All you need to know about GST and tax collections
GST collections continue to contribute strongly to government revenues, even as rate rationalisation affects net receipts. Structural reforms including GST 2.0 have influenced price signals, consumption and compliance patterns, with overall revenues remaining resilient amid the evolving tax landscape.
India’s Gross GST collections for the month of November stood at Rs 1,70,276 crore, up 0.7% year on year, driven by lower GST rates and increased compliance.
Direct taxes also show healthy growth, supporting the government’s fiscal glide path and funding capital expenditure priorities. India’s net direct tax collections rose 8% to Rs 17.05 lakh crore so far in the current financial year, helped by steady growth in corporate tax receipts and lower refunds
Budget FY27: All you need to know about RBI policy and liquidity
The RBI has cut the policy repo rate by 125 basis points in 2025, bringing it down to 5.25% as inflation remained benign and growth picked up.
Liquidity management has been active, with the central bank expected to inject additional liquidity to maintain surplus conditions and support credit growth through early 2026.
The RBI Governor has indicated that policy rates may remain low through an extended period as long as inflation remains subdued.