ICRA Foresees Fiscal Prudence Amidst Growth in Capital Expenditure

ICRA suggests a fiscal deficit of 4.3% of GDP for FY2027 and anticipates a 14% increase in capital expenditure. The focus of the FY2027 Union Budget will shift towards debt consolidation amidst expected shifts from the 16th Finance Commission's recommendations and upcoming fiscal pressures from the 8th Central Pay Commission.

In its latest forecast, ICRA projects the government to aim for a fiscal deficit of 4.3% of GDP in FY2027. This prioritizes medium-term debt consolidation, steering away from annual deficit targets, with a strategic increase in capital expenditure.

For the current fiscal year, ICRA anticipates a Rs 1.3 lakh crore shortfall in net tax revenues, balanced somewhat by an Rs 80,000 crore surge in non-tax receipts beyond the 2025-26 Budget target. The fiscal slippage appears unlikely if the gap in receipts is counteracted by savings in expenditure.

The FY2027 Union Budget is critical amidst the government's shift towards managing upcoming fiscal constraints, courtesy of the 8th Central Pay Commission. This strategic foresight suggests a robust financial path, albeit with challenges posed by increased gross market borrowings projected to rise by up to 16%.

(With inputs from agencies.)