Union Budget 2026: FY27 fiscal deficit likely to peg at 4.3% of GDP, says ICRA

The government is likely to peg the fiscal deficit at 4.3 per cent of GDP in the next financial year beginning April 2026, while continuing with double-digit growth in capital expenditure, rating agency ICRA said in its pre-Budget expectations on Friday.



ICRA said it expects a shortfall of about Rs 1.3 lakh crore in net tax revenues in the current fiscal, while non-tax receipts are likely to exceed the 2025-26 Budget target by around Rs 80,000 crore.





“Fiscal slippage unlikely in FY2026, if shortfall in receipts is matched by expenditure savings,” it said.



According to ICRA, the FY2027 Union Budget will be significant as the government’s focus is expected to shift towards medium-term debt consolidation rather than annual fiscal deficit targets, alongside the rollout of the 16th Finance Commission’s recommendations for the next five years.



The agency expects the fiscal deficit to be capped at 4.3 per cent of GDP in FY2027, assuming nominal GDP growth of 9.8 per cent. This would be marginally lower than the Budget Estimate of 4.4 per cent for FY2026.



ICRA said the government is likely to raise capital expenditure by 14 per cent to Rs 13.1 lakh crore in FY2027, before fiscal rigidities begin to intensify from FY2028 onwards due to higher committed expenditure linked to the recommendations of the 8th Central Pay Commission on salary and pension revisions for Central government employees and pensioners.



Despite the expected moderation in the fiscal deficit-to-GDP ratio, the agency said gross dated market borrowings are projected to rise sharply by 15–16 per cent to Rs 16.9 lakh crore in FY2027. This increase would be driven mainly by higher redemptions, although it could be partly offset through switching of government securities, ICRA added.