Kotak Securities projects the Centre’s gross fiscal deficit at 4.3% of GDP in FY27, only marginally lower than the estimated 4.4% in FY26, signalling a deliberate easing in the consolidation glide path. “India’s current economic backdrop, shaped by geopolitical tensions and trade uncertainty, warrants a steady, growth-supportive stance in the FY2027 Union Budget,” the brokerage said.
1) A slower fiscal consolidation path
At the core of Kotak’s Budget math is a conscious decision to slow fiscal tightening. The brokerage noted that the Centre’s debt/GDP target of 50±1% by FY2031 allows room for a modest annual reduction of 10–20 basis points in the fiscal deficit ratio. Against that backdrop, it expects FY27 GFD/GDP to settle at 4.3%, reflecting continued capex momentum, modest tax buoyancy and a large RBI surplus transfer.
2) Limited scope for fiscal stimulus or populism
After income-tax relief and GST rate cuts in FY26, Kotak sees little headroom for large, market-pleasing giveaways. “Following income tax relief and GST rate cuts in FY2026, and given the prevailing fiscal constraints, we see a limited scope for any large fiscal stimulus in the FY2027 budget,” the report said. With committed expenditure accounting for around 60% of revenue expenditure, outright populism would risk straining the fiscal balance, even as several states have pivoted toward cash-transfer schemes.
3) Capex remains the policy anchor
The third key decision, Kotak said, will be to keep the focus firmly on capital expenditure. The brokerage pencilled in capital spending growth of 9% in FY27, with a sharp emphasis on defence, where it expects spending to rise 20%, and continued support through loans for states’ capex programmes. Revenue expenditure, by contrast, is seen growing at a more restrained 5%, underscoring the Centre’s preference for growth-supportive investment over consumption-led stimulus.
4) Receipts buoyed by taxes and a hefty RBI surplus
On the revenue side, Kotak forecasts gross tax revenue growth of 9% in FY27, driven by 11% growth in corporate taxes and 12% growth in personal income taxes, supported by 10–10.5% nominal GDP growth, stronger corporate earnings and moderate wage gains. Indirect taxes are expected to benefit from strong GST and excise collections, reflecting higher taxes on tobacco.
A crucial cushion, however, comes from non-tax revenues. Kotak estimates the RBI’s surplus transfer at Rs 2.9 trillion in FY27, up from Rs 2.7 trillion in FY26, citing continued strength in foreign and domestic income. It also assumes a slight increase in devolution to states, modelling the likely recommendations of the 16th Finance Commission.
5) Higher borrowing, bond market unease
If equity markets may be disappointed by the absence of large-scale announcements, the bond market could be more unsettled by the fifth decision: higher borrowing. Kotak estimates gross government securities borrowing at Rs 16 trillion in FY27, compared with Rs 14.8 trillion in FY26, driven by large redemptions. Net dated securities borrowing is pegged at around Rs 12 trillion, with an additional Rs 1 trillion through Treasury bills. The brokerage warned that this could “add pressure across the yield curve”.
Taken together, Kotak’s preview paints a picture of a Budget that is deliberately understated, seeking to balance growth support with fiscal credibility. For markets, the signals may be subtle rather than dramatic, but the brokerage argues they could still prove decisive in shaping sentiment through FY27.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)