Nilesh Shah , Managing Director, Kotak Mahindra Asset Management Co Ltd
| Photo Credit:
Bijoy Ghosh
Against a backdrop of global trade frictions and geopolitical uncertainty, India’s 2026-27 Budget aims to sustain the country’s position as the world’s fastest-growing major economy. Real GDP growth is projected at 6.8-7.2 per cent for the coming fiscal, underpinned by a calibrated mix of growth-oriented capital spending and disciplined fiscal management. Anchored in the vision of Viksit Bharat and guided by Kartavya (duty) towards inclusive development, the Budget reflects a decisive shift towards long-term resilience and strategic self-reliance.
Macroeconomic stability
In contrast to several developed economies that have relied on rising leverage to manage near-term challenges, India has opted for a path of fiscal restraint to preserve long-term sustainability. The government has reaffirmed its commitment to macroeconomic stability by lowering the fiscal deficit target to 4.3 per cent of GDP for FY27, from 4.4 per cent in the previous year.
More importantly, fiscal policy is gradually transitioning from headline deficit targeting to a debt-to-GDP anchor. The debt ratio is projected to decline to 55.6 per cent in FY27 from 56.1 per cent in FY26, with a stated medium-term objective of reaching 50 per cent by 2030. This shift is structurally positive, as it should reduce interest outgo over time and create greater fiscal space for productive public investment.
Multiplier Effect
A defining feature of the Budget is its continued emphasis on infrastructure-led growth. The government has announced a record capital expenditure outlay of ₹12.2 lakh crore, representing a 9 per cent increase over FY26. This sustained focus on building the economic “plumbing” – spanning transport, energy, and digital infrastructure, is critical to crowding in private investment and lifting medium-term growth potential.
Key announcements include seven high-speed rail corridors, a dedicated freight corridor connecting Dankuni in the East to Surat in the West, and 20 new national waterways. Urban development also receives a strong push through City Economic Regions, plans for five university townships etc. Collectively, these initiatives aim to create multiple, sustainable engines of economic growth.
The creation of an Infrastructure Risk Guarantee Fund, offering partial credit guarantees to lenders, is an important step. By mitigating development-phase risks, this mechanism should improve credit availability and lower the cost of capital for infrastructure projects.
Digital India and Investment Incentives
A standout highlight of the Budget is the announcement of a tax holiday until 2047 for foreign data centres. Given the capital-intensive nature of data centres and India’s advantages in power costs, operating efficiency, and digital connectivity, this measure positions India as a potential global hub for digital infrastructure.
In addition, a safe-harbour margin of 15.5 per cent for IT services subsidiaries, including data centres, with an enhanced threshold of ₹2,000 crore, should further strengthen India’s Global Capability Centre (GCC) ecosystem and support the creation of high-quality employment.
Market Implications
While the increase in Securities Transaction Tax (STT) on futures and options may result in near-term market volatility, the longer-term market outlook remains constructive, supported by robust growth fundamentals. The decision to tax buybacks as capital gains for all shareholders, while imposing an additional levy only on promoters, is a positive step for minority investors.
Gross market borrowings are projected to rise to ₹17.2 lakh crore; however, net borrowings remain broadly unchanged, easing concerns around incremental supply pressure.
Overall, the 2026–27 Budget reinforces India’s growth trajectory through sustained public investment, targeted incentives for the digital economy, and a credible commitment to fiscal discipline. These measures collectively advance the long-term objective of Viksit Bharat while strengthening macroeconomic resilience.
Published on February 1, 2026
