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Union Budget FY27 Strengthens India’s Medium-Term Growth Outlook: Goldman Sachs
Budget: According to Goldman Sachs, the government has struck a balance between growth and fiscal discipline in the FY 2027 Budget. The commitment to continued capital expenditure, fiscal deficit reduction, and public debt control strengthens the economy and investor confidence in the medium term. Let's explore the details.
According to Goldman Sachs' latest report, the Union Budget for FY 2027 supports India's medium-term macroeconomic outlook. The report states that the government has softened fiscal drag while maintaining continuity in capital expenditure (capex), creating a conducive environment for growth.
The report describes the Finance Minister's reiteration of the central government's public debt as an important signal. The target is to reduce the debt-to-GDP ratio to 50% (+/-1%) by FY 2031, lower than the target of 55.6% in FY 2027. According to Goldman Sachs, India's public debt burden is relatively high compared to many emerging market peers, and this commitment provides confidence.
With regard to the government’s stand on fiscal discipline, the report noted that the fiscal deficit has been announced to be reduced by 10 basis points in FY 2027 to 4.3 percent of GDP. Furthermore, the net impact of fiscal drag on growth in FY 2027 is likely to be less than in FY 2026.
On the growth support side, the public capex target remains unchanged at 3.1% of GDP. There is a strong focus on infrastructure-related sectors, with a solid increase in defense, railways, and roads spending. Goldman Sachs termed it a constructive step for maintaining investment in infrastructure, although it has not fully met budgetary targets in recent years.
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Meanwhile, ICRA stated that the High-Level Committee on Banking for a Developed India, announced by Finance Minister Nirmala Sitharaman during Budget 2026, should address key issues such as promoter ownership structure and voting rights. According to ICRA, these issues continue to impact participation by private sector and foreign investors.
The agency also highlighted that while significant consolidation has occurred in the banking sector following the merger of public sector banks in 2020, bank privatization has not made substantial progress. According to the Finance Minister, this committee will conduct a comprehensive review of the banking sector and focus on ensuring financial stability, inclusion, and consumer protection.
