Union Budget 2026 Expected to Target Fiscal Deficit Around 4.2-4.3% with Increased Capital Spending

Ahead of the Union Budget 2026, ratings agency ICRA projects India's fiscal deficit target at 4.3% of GDP for FY27, slightly lower than FY26's 4.4%. Capital expenditure is expected to rise by about 14% to Rs 13.1 lakh crore before fiscal pressures from the 8th Pay Commission emerge in FY28. Morgan Stanley forecasts a marginally lower deficit of 4.2%, emphasizing spending on consumption, job creation, and structural reforms. Both agencies highlight a medium-term focus on debt consolidation aligned with the 16th Finance Commission recommendations and a gradual reduction of government debt to 50% of GDP by FY31.