Fitch Ratings believes India’s Union budget 2026-27 is “broadly neutral” for growth but shows a slowing pace of fiscal consolidation, according to Reuters.
Finance Minister Nirmala Sitharaman in the budget 2026-27 announced that the government will target a debt-to-GDP ratio of 55.6%, for a fiscal deficit of 4.3% of GDP and unveiled measures to beef up manufacturing in a volatile global environment.
Slower consolidation reflects growth trade-offs, says Fitch
“The slowing pace of consolidation seen in India’s budget for fiscal year 2027 is in line with our view that further progress on deficit reduction is becoming more difficult without compromising more on GDP growth,” Fitch said according o Reuters.
Fitch acknowledged the Indian government’s growing track record of fiscal consolidation but pointed out that the budget gap yawned wider than in the years before the COVID-19 pandemic.
The quality of government finances has improved, however, Fitch said.
“Although the overall fiscal deficit is still higher than pre-pandemic levels, this reflects stronger capital expenditure spending, as the revenue deficit is narrower than pre-pandemic levels, even including previously off-budget spending,” it said.
Higher deficit reflects capex push, revenue gap narrows: Fitch
“Still, general government deficits, debt and interest payments all remain elevated compared to peers and are only declining gradually.”
Fitch sees the budget as neutral for growth. “Strong GDP growth is driving positive momentum in several of India’s sovereign credit metrics and if sustained could improve the credit profile over time, even as lingering fiscal challenges remain,” it said.
Building on recent reform momentum should help speed private investment and improve growth prospects for the economy, it added.
According to PTI, Fitch expects more reforms to be forthcoming, particularly on the deregulation agenda, even though the Budget did not flag any specific large-scale reform announcements.
Fitch forecasts FY27 growth at 6.4%. It believes the continued emphasis on capex spending should be supportive of both near and medium-term prospects. The Indian government however sees the economy to grow in a range of 6.8% to 7.2%.