New Delhi: The Central government on Saturday announced a consumption stimulus (cuts in personal income tax rates), held on to its capex thrust, and yet stayed on the fiscal consolidation path, an HSBC report said.
The government walked the tightrope in the budget, balancing several conflicting objectives. It gave a near-equal stimulus to both consumption (personal income tax cuts amounting to Rs 1 lakh crore) and capex (raising budget outlays by Rs 1 lakh crore) while lowering the fiscal deficit (as promised, to 4.4 per cent of GDP for FY26).
“On the budget math, we think with careful pruning of schemes, expenditure assumptions can be met. With fiscal discipline maintained and inflation on the decline, we expect the central bank to stimulate growth with rate cuts and liquidity infusion,” said the report by HSBC Global Research.
The government announced a fiscal deficit of 4.8 per cent of GDP for FY25, lower than the budget estimate of 4.9 per cent of GDP. A fiscal deficit target of 4.4 per cent of GDP is set for FY26, marking a 0.4 per cent of GDP fiscal consolidation.
“Despite pressures to support growth, the government stuck to its promise of lowering the fiscal deficit to below 4.5 per cent of GDP in FY26. This, we believe, is a big positive for macro stability,” the report emphasised.
The government plans to “keep the fiscal deficit each year such that the Central Government debt remains on a declining path as a percentage of the GDP”.
Non-tax revenues look reasonable. Dividends from the RBI and other financial institutions are at Rs 2.6 lakh crore (versus Rs 2.3 lakh crore in FY25).
Capex is expected to grow in line with nominal GDP growth, coming in at Rs 11.2 lakh crore in FY26 (vs Rs 10.2 lakh crore in FY25), and suggesting that the government intends to hold on to the capex thrust it has carefully nurtured.
“All told, we think that with careful pruning, expenditure numbers can be met,” said the report.
In line with the fiscal consolidation, the government announced a net market borrowing of Rs 11.5 lakh crore in FY26, lower than Rs 11.6 lakh crore in FY25, the report mentioned.
(IANS)
