Investment bank flags softer fiscal drag, steady capex and commitment to debt reduction as supportive for medium-term growth
India’s medium-term macroeconomic outlook remains constructive as the Union Budget for FY27 signals continuity in capital expenditure while maintaining a clear fiscal consolidation trajectory, according to a report by Goldman Sachs.
The report said the finance minister has reaffirmed the government’s commitment to keep central government public debt on a declining path, describing it as an important signal given India’s relatively elevated public-debt burden compared with most emerging market peers.
“The FM reaffirmed the commitment to keep central government public debt (as a share of GDP) on a declining path toward 50 per cent (+/- 1 per cent) by FY31, from a target of 55.6 per cent in FY27. We see this as an important signal,” Goldman Sachs said.
The investment bank noted that the government has stayed on its fiscal consolidation path, announcing a further 10 basis point reduction in the fiscal deficit to 4.3 per cent of GDP in FY27. It added that the net impact of fiscal drag on growth in FY27 is expected to be smaller than in FY26.
On growth support, the report highlighted that public capital expenditure has been retained at around 3.1 per cent of GDP, with allocations tilted towards infrastructure-linked sectors. The budget, it said, signals intent to sustain infrastructure investment through robust spending on defence, railways, and roads.
“We view this as a constructive signal for continued infrastructure investment, though execution has somewhat undershot budgeted capex in recent years,” Goldman Sachs said.
Defence spending has been prioritised, with capital expenditure budgeted to grow by around 17 per cent year-on-year, while transfers to states for capital expenditure are set to rise by about 33 per cent year-on-year, which the report described as supportive of investment-led growth.
While net market borrowing remains elevated despite consolidation, Goldman Sachs expects policy support to cushion liquidity conditions. “We think the Reserve Bank of India is likely to remain a net buyer in FY27, partly offsetting rupee liquidity drain from FX sales,” the report said.
The investment bank underlined that Indian policymakers have increasingly prioritised macroeconomic resilience over chasing near-term growth spurts, with continued emphasis on strengthening public-sector balance sheets to extend the runway for durable, high, and less volatile growth.
On equities, Goldman Sachs said the softer fiscal drag alongside steady capex spending was largely in line with expectations and continues to support a fundamentally constructive outlook.
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