India’s Medium-Term Outlook Remains Constructive as Union Budget FY27 Signals Fiscal Continuity
India’s medium-term macroeconomic outlook remains constructive as the Union Budget for FY27 signals continuity in capital expenditure alongside a softer fiscal drag, according to a report by Goldman Sachs. The finance minister has reaffirmed the government’s commitment to gradually reduce central government public debt, which is considered an important signal given India’s relatively elevated debt burden compared with most emerging-market peers.
Fiscal Consolidation And Public Debt Trajectory
The report notes that the central government aims to bring public debt down toward 50% of GDP (+/- 1%) by FY31, from the FY27 target of 55.6%. Goldman Sachs highlighted this as a critical move for long-term macro stability. The budget further supports fiscal consolidation by announcing a 10-basis-point reduction in the fiscal deficit, bringing it to 4.3% of GDP in FY27. According to the report, the net impact of this fiscal drag on growth will be smaller than in FY26, allowing for continued expansion without overly straining public finances.
Infrastructure And Capital Expenditure Support
Public capital expenditure remains a priority, with a target retained at 3.1% of GDP and allocations tilted toward infrastructure-linked sectors such as defence, railways, and roads. Goldman Sachs described this as a constructive signal for sustained investment-led growth, even though actual execution in previous years has fallen short of budgeted capex. Defence spending, in particular, has been prioritized, with capital expenditure projected to grow by around 17% year-on-year, while transfers to states for capital spending are set to increase by approximately 33% year-on-year. These allocations reinforce India’s focus on building long-term productive capacity and creating a pipeline of infrastructure projects.
Policy Support And Equity Market Implications
Despite ongoing fiscal consolidation, net market borrowing remains elevated. Goldman Sachs expects the Reserve Bank of India to continue acting as a net buyer in FY27 to partly offset the rupee liquidity drain from foreign exchange sales. The report also underlines that Indian policymakers are increasingly prioritizing macroeconomic resilience over short-term growth spurts, with an emphasis on strengthening public-sector balance sheets to support durable, high, and less volatile growth. On equities, Goldman Sachs noted that the softer fiscal drag, combined with steady capex spending, aligns with expectations and continues to support a fundamentally constructive view on Indian equities, driven by earnings growth recovery despite near-term volatility.
Overall, the Union Budget FY27 reinforces India’s commitment to fiscal prudence, infrastructure-led development, and macroeconomic stability, signaling positive long-term prospects for the economy and equity markets alike.
(This article has been syndicated from ANI)
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