Union Budget 2026-27: Fiscal Deficit Pegged at 4.3%, Inflation Tamed at 1.33%

Market snapshot: Prime Minister Narendra Modi's post-budget address highlighted a dual victory for the Indian economy: robust growth coupled with historic price stability. The Union Budget 2026-27 adheres strictly to fiscal consolidation, setting a fiscal deficit target of 4.3% of GDP for FY27, marginally lower than the Revised Estimate (RE) of 4.4% for FY26. This comes against a backdrop of benign inflation, with the Consumer Price Index (CPI) dropping to 1.33% in December 2025, the lowest in the current series.

Summary: Budget 2026 targets 4.3% fiscal deficit while inflation hits record low of 1.33%. Real GDP growth estimated at 7.4%. Structural shift to Debt-to-GDP targeting announced.

Key Takeaways

• Fiscal Prudence: FY27 deficit target set at 4.3%, on track for <4.5% goal.
• Inflation Control: Headline CPI at 1.33% (Dec '25) gives RBI significant policy room.
• Growth Engine: Real GDP growth for FY26 estimated at 7.4%; Nominal GDP target 10% for FY27.
• Monetary Easing: RBI has already cut repo rate by 125 bps since Feb 2025 to 5.25%.

SAHI Perspective

The government's adherence to the fiscal glide path despite global headwinds signals mature economic stewardship. The shift from pure deficit targeting to a 'Debt-to-GDP' framework (aiming for 50% by 2031) aligns India with global best practices. With inflation well below the RBI's 4% anchor, the central bank has the liquidity headroom to support credit expansion without risking price instability. The focus on capital expenditure (₹12 trillion projected) ensures the multiplier effect continues to drive the 7.4% real GDP growth.

Closing Insight

Budget 2026-27 effectively bridges the gap between populist demand and fiscal rectitude. By leveraging the low-inflation environment to push for higher real growth, the administration creates a conducive environment for equity markets, particularly in infrastructure and consumption sectors.

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