By Nilesh Shah
Budget FY27 reinforces India’s medium-term investment-led growth framework with a continued emphasis on infrastructure and capital expenditure alongside a credible commitment to fiscal discipline. The balancing act between the need to support growth and maintain fiscal prudence is of great importance, especially amid rising global uncertainties. Much like a well-paced cricket innings—where early discipline allows the run rate to accelerate later—the government’s steady focus on public investment over recent years is now creating the conditions for sustained growth.
Fiscal Discipline and Sustainable Growth
While supporting growth, the focus on fiscal consolidation is unwavering. The fiscal deficit framework moves towards targeting a lower debt-to-GDP ratio with the aim of reaching 50% (+/-1%) by FY31 (as compared to 56.1% in FY26), resulting in the budget targeting a gross fiscal deficit of 4.3% of GDP.
Overall, the Budget strengthens the foundations for economic growth, which in turn would result in a broader and more durable corporate earnings cycle. Steps such as setting up a high-level committee on banking for Viksit Bharat to align the sector with India’s next phase of growth is a step in this direction. A structural addition in FY27 is the continued strengthening of India’s Semiconductor Mission, reflecting the government’s intent to position semiconductors as a strategic pillar of manufacturing sovereignty.
Capex, Technology, and Sectoral Boosts
The Budget recognises that while consumption demand has remained resilient, private sector capital expenditure is yet to broaden meaningfully across the economy. Public capex therefore continues to play a catalytic role. The focus remains firmly on productive asset creation with the Budget, targeting growth in capex at 11.5% over the FY26 revised estimates and with effective capital expenditure growth of 22.1% over the FY26-RE. The defence capex is also budgeted to grow at 17% over FY26-RE in line with the focus on indigenising defence spends.
Another notable feature of the Budget is its continued emphasis on tech-driven growth, with policy attention on digital infrastructure, data ecosystems, and AI. A tax holiday till 2047 for foreign companies providing global cloud services using data centres located in India appears to be aimed at attracting investments into AI.
Similar to the technology sector, the FY27 Budget stands out, given the continued strengthening of healthcare as a growth and employment sector. The government outlined several structural steps aimed at expanding healthcare capacity, improving service delivery, and building domestic manufacturing and research capabilities.
While the Budget focuses on boosting high-technology industries, there is also an effort to support legacy industries by launching schemes concerning the revival of 200 legacy industrial clusters to improve their cost competitiveness and efficiency through infrastructure and technology upgrade.
Despite growth in capital outlays, the Budget maintains a clear glide path towards fiscal consolidation. Fiscal deficit is set at 4.3% of GDP and provides some fiscal impetus, given a slower pace of fiscal consolidation as compared to previous years. The nominal GDP growth is budgeted at 10% in FY27-budget estimates and the net tax revenue growth is budgeted at 7.2%, which appears realistic. While gross borrowings are higher, the increase in net borrowings seems manageable. The actual borrowing over the year would need close monitoring, especially if the trajectory of collections from other sources of financing trend higher than budgeted.
For equity investors, even while there is some short-term sentiment disappointment due to the hike in securities transaction tax on futures and options, this balance between growth and discipline is critical from a medium- to long-term perspective. The Budget also brings buyback as an option for a preferred mode of returning capital. Overall, the Budget stays focused on strengthening the foundations of growth through infrastructure creation, capex, and fiscal discipline .Over time, stronger potential economic growth improves debt sustainability, which is supportive of equity risk premiums and is important for investors. This consistency is reassuring and reinforces confidence in India’s medium-term earnings trajectory as well.
The author is Managing Director at Kotak AMC
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.