Budget 2026 Expected to Focus on Reforms and Fiscal Discipline
HSBC report projects fiscal consolidation, controlled deficit, and continued structural reforms in upcoming budget.
New Delhi: The Union Government is expected to emphasize structural reforms in the Budget 2026-27, according to a report released on Tuesday. The report by HSBC suggests that the government will continue the reform momentum initiated in recent months.
Finance Minister Nirmala Sitharaman is scheduled to present the budget in Parliament on 1 February 2026. The report indicates that the budget will primarily focus on fiscal discipline and policy reforms.
HSBC estimates that the government is likely to meet its fiscal deficit target of 4.4% of GDP for FY2026. Any revenue shortfall due to tax cuts is expected to be offset partly by higher dividends from RBI and public sector enterprises, along with some reduction in current expenditure.
The report notes, “Cuts in allocations will help the government reduce spending in FY2027, with the fiscal deficit expected to narrow to 4.2% of GDP.” Net borrowing for FY2027 is projected to remain at ₹11.5 lakh crore, though gross borrowing may rise to ₹16 lakh crore due to higher redemption bills.
HSBC adds that “the increase in borrowing will remain below nominal GDP growth, keeping debt manageable. Fiscal consolidation is likely to be largely neutral in terms of stimulus, as RBI dividends will add to receipts.”
However, the report cautions that state government debt ratios may rise in the coming years, as states lack similar consolidation levers. Still, overall gross market borrowing, including states, is expected to grow slightly below nominal GDP, an improvement over FY2026 when borrowing growth exceeded GDP growth.
On the domestic front, HSBC expects the government to continue liberalization measures at both center and state levels, promote manufacturing incentives for small firms, diversify capital spending, and implement rationalization in subsidies and centrally sponsored schemes.
