Union Budget 2026 likely to peg India's fiscal deficit target at 4.3%, ICRA says

Union Budget 2026 is set to be an interesting one as government's focus is shifting to debt consolidation from fiscal deficit targets, ICRA says.

The government is likely to peg India's fiscal deficit target at 4.3% of the GDP for 2026-27 amid a double-digit growth in capital expenditure, ICRA said.

Union Finance Minister Nirmala Sitharaman will present her record ninth consecutive union budget on 1 February 2026. (@FinMinIndia)

Union Budget 2026 is set to be an interesting one, the Mumbai-based ratings agency said in a budget-expectations note released on Friday. The government's focus is shifting to medium-term debt consolidation from annual fiscal deficit targets, as well as the implementation of the 16th Finance Commission for the next five years.

ICRA expects the government to increase its capex by 14% to ₹13.1 lakh crore in FY27 before fiscal rigidities (8th Pay Commission) come into effect in FY28.

To be sure, ICRA's estimate of 4.3% fiscal deficit in FY27 is 10 basis points lower than the 4.4% estimated for FY26. ICRA expects net tax revenue to lag by ₹1.3 lakh crore in FY26 even as non-tax receipts cross the budgetary estimate by ₹80,000 crore. “A fiscal slippage is unlikely in FY26, if shortfall in receipts is matched by expenditure savings,” ICRA said.

Despite a mild dip in the Fiscal Deficit-to-GDP ratio, ICRA expects gross dated market issuances to rise sharply by 15-16% to ₹16.9 lakh crore, led by a surge in redemptions, although this may be tempered by switching of government securities.