New Delhi, January 26

India is expected to remain a key global growth bright spot, backed by strong macroeconomic fundamentals, with government capital expenditure projected to cross ₹12 lakh crore in FY27, registering a year-on-year growth of about 10 per cent, according to an SBI Research report released on Monday.

The report estimates nominal GDP growth relevant for Budget calculations at 10.5–11 per cent. Rising global commodity prices could push wholesale price inflation higher, potentially impacting overall revenue projections.

A moderation in nominal growth may exert pressure on tax collections in FY27, necessitating tighter expenditure management. However, proposed GST rationalisation and possible reductions in marginal personal income tax rates are expected to partly offset the impact of a slower tax base, said Dr Soumya Kanti Ghosh, Group Chief Economic Adviser at State Bank of India.
Based on the nominal growth outlook, the fiscal deficit for FY27 is projected at 4.2 per cent of GDP. Government borrowing costs are expected to remain in the range of 6.8–7.0 per cent, with risks broadly balanced.

Net central government borrowing for FY27 is estimated at ₹11.7 trillion about 70 per cent of the fiscal deficit while repayments are expected to total ₹4.6 trillion. This includes ₹1 lakh crore in anticipated buybacks and ₹1.5 trillion through bond switches. State governments’ gross borrowings are projected at ₹12.6 trillion, with repayments of around ₹4.2 trillion.

The report highlighted the possibility of scaling down State Development Loans (SDLs) through structural reforms, alongside higher central government borrowing via increased T-Bill issuance. Given the scale of borrowing, closer coordination between the government and the Reserve Bank of India may be required to implement meaningful reforms in the SDL market.

SBI Research noted that the presentation of the Union Budget 2026 comes amid heightened global uncertainty, marked by shifting geopolitical dynamics and volatility across equity and bond markets.

It further recommended that states, which account for a significant share of overall public debt, should outline medium-term, scenario-based debt-to-GSDP paths in their budgets. These should be aligned with realistic growth assumptions and development priorities, rather than focusing solely on annual deficit targets—an approach the Union Budget may underscore. Agencies input