All eyes are on the upcoming FY27 Budget on February 1, amid concerns over US tariffuncertainty, slower nominal GDP growth and ongoing GST reforms..
Motilal Oswal,highlighted that the defence sector is likely to receive higher allocations, along with labour-intensive sectors impacted by global trade tariffs. The brokerage also expects the Government to meet its FY26 fiscal deficit target of 4.4% of GDP, despite marginally higher fiscal spending of about Rs 16,800 crore over the Budget estimate.
Budget 2026 Wishlist: Motilal Oswal’s top 5 expectations
Here are the key expectations of Motilal Oswal from the upcoming Budget.
#1. Capex to stay in focus
Motilal Oswal expects the upcoming budget to prioritise capital expenditure, with capex projected to rise 10.3% year-on-year(YoY) to Rs 12.4 trillion, or about 3.1% of GDP.
#2. Focus on defence, allied industries
According to Motilal Oswal, Defence and allied industries are likely to be one of the key priority sectors in the Union Budget,. The others include nuclear energy, electronics critical minerals, pharma and trade tariff-affected labour-intensive sectors.
Defence capital outlay is expected to rise by around 15% in FY27 as the government looks to build domestic capabilities, support start-ups in the defence ecosystem and strengthen strategic self-reliance. Overall, the total expenditure is projected to grow by about 7% year-on-year in FY27.
#3. Muted GST growth, RBI dividend to aid fiscal maths
On the revenue front, GST collection may see muted growth with direct tax receipts expected to rise by 10.2% to reach Rs 25.7 trillion. However, the brokerage firm expects a dividend of Rs 3 trillion from the Reserve Bank of India (RBI), driven by heavy dollar sales, emerging as a key support for fiscal maths. PSU dividends also expected to remain steady.
#4. US tariff risks prompt call for policy support
The Motilal Oswal report flags US tariff-related uncertainty as a key external risk influencing India’s macro outlook and budget priorities.
“Given the US tariff-led uncertainty, there is a call for a policy push to continue to support the growth. The main question is – who would do the heavy lifting and would it be effective?”
#5. Market borrowings seen elevated in FY27
Despite fiscal consolidation, borrowing requirements are expected to remain heavy. The Motilal Oswal report pegs the Centre’s gross market borrowing at around Rs 16.5 trillion in FY27, with net borrowing at about Rs 11.9 trillion. Combined Centre and state gross borrowings could touch nearly Rs 29.7 trillion, keeping bond supply elevated.
The report also noted that the government may start using the debt-to-GDP ratio as its primary fiscal policy target marking a historic shift from the traditional focus on the annual deficit alone. According to Motilal Oswal, the budget may outline a trajectory to reduce the debt-to-GDP ratio from the current 56% to 50% by FY31. The Budget as per Motilal Oswal, is likely to be framed around a nominal GDP growth assumption of about 10.1%, providing some headroom to balance discipline with growth support.