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India's medium-term macro outlook remains constructive as the Union Budget for FY27 signals continuity in capital expenditure alongside a softer fiscal drag, according to a report by Goldman Sachs.
The report notes that the finance minister has reaffirmed the commitment to keep central government public debt on a declining path, calling it an important signal, given India's relatively elevated public-debt burden versus most EM peers. The report says "the FM reaffirmed the commitment to keep central government public debt (as a share of GDP) on a declining path toward 50% (+/- 1%) by FY31 (from 55.6% target in FY27). We see this as an important signal, given India's relatively elevated public-debt burden versus most EM peers" Goldman Sachs said the government has stayed on the fiscal consolidation path, announcing a further 10bp reduction in the fiscal deficit to 4.3% of GDP in FY27, adding that the net impact of fiscal drag on growth in FY27 will be smaller than in FY26. The report notes "the government stayed on the fiscal consolidation path, announcing a further 10bp reduction in the fiscal deficit to 4.3% of GDP in FY27" On growth support, the report highlighted that the public capex target was retained at 3.1% of GDP, with allocations tilted toward infrastructure-linked sectors. It said the budget signalled intent to sustain infrastructure investment, with robust allocation towards defence, railways and roads. "We view this as a constructive signal for continued infrastructure investment, though execution has somewhat undershot budgeted capex in recent years," said Goldman Sachs. Defence spending has been prioritised, with capital expenditure budgeted to grow by around 17% yoy, while transfers to states for capital expenditure are budgeted to increase by ~33% yoy, which the report described as a constructive signal for investment-led growth. The report added that despite consolidation, net market borrowing remains elevated, but expects policy support, stating that "we think the RBI is likely to remain a net buyer in FY27, to partly offset the Rupee liquidity drain from FX sales." Goldman Sachs underlined the broader policy stance, saying that Indian policymakers have increasingly prioritised macroeconomic resilience over chasing near-term spurts of growth, and that the emphasis remains on strengthening public-sector balance sheets to extend the runway for durable, high, and less volatile growth. On equities, the report said that the softer fiscal drag in the budget, along with steady capex spending, was largely in line with our expectations, and continues to support a fundamentally constructive view on Indian equities driven by earnings growth recovery, despite near-term volatility. (ANI)
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