Global financial services company Nomura announced on Thursday that India’s forthcoming Union Budget for 2025-2026 will emphasize both fiscal consolidation and growth-supportive measures. The firm predicts the government may introduce changes to personal income tax slabs to boost consumer spending.
Nomura expects India to exceed its fiscal deficit target for the fiscal year 2025, estimating a deficit of 4.8% of GDP, slightly below the earlier forecast of 4.9%. This adjustment is attributed to a reduction in capital expenditure (capex) spending. For FY 2026, Nomura anticipates capex will remain at 4.4% of GDP, aligning with India’s medium-term objectives.
The firm also predicts public capital expenditure will grow by 12.5% year-on-year in FY 2026. The budget is likely to include measures such as a lower corporate tax rate for companies operating manufacturing hubs in India, reduced customs duties on intermediate inputs, and increased investment in agriculture.
Additionally, Nomura foresees an increase in import duties on gold, an expansion of the foreign direct investment (FDI) limit in the insurance sector, and initiatives to boost capital inflows to support the rupee.
Regarding borrowing, Nomura predicts India’s gross market borrowing will rise slightly in FY 2026, reaching Rs 14.4 lakh crore, compared to Rs 14 lakh crore in the current year. However, this figure could decrease if the government conducts more buybacks in the coming weeks. Net market borrowing is expected to drop to Rs 11.03 lakh crore, a decline of Rs 60,000 crore from FY 2025.
Looking forward, Nomura believes that while much of the positive fiscal news may already be reflected in the market, Indian government bonds remain an attractive investment. The firm sees the risks related to the upcoming budget announcement as asymmetric, suggesting that the government’s balanced approach will help keep India’s fiscal risk premium low. This would provide the Reserve Bank of India (RBI) greater flexibility to lower its policy rate during the February Monetary Policy Committee (MPC) meeting.
India’s Union Budget for 2025-2026 promises to be a strategic blend of fiscal prudence and growth incentives, positioning the nation for sustained economic progress.
