New Delhi, Jan 20 The wave of reforms are likely to feature prominently in the Union Budget 2026-27, an HSBC report said on Tuesday, adding that given a slew of announcements in recent months, the government is in a mood for further reforms.
The central government budget will be presented on February 1, followed closely by the RBI policy meeting on February 6.
“We believe the government will focus on two pillars during such time – restraint and reforms,” the report mentioned.
The report expects the government to meet its FY26 fiscal deficit target of 4.4 per cent of GDP. The tax rate-cut led fall in revenues will likely be partly filled by strong RBI and PSU dividend, and partly by lower current expenditure.
“We expect that pruning of schemes will help the government lower its expenditure in FY27, and we forecast a fiscal deficit of 4.2% of GDP,” the HSBC report said.
It also expects an unchanged net borrowing bill of Rs 11.5 lakh crore in FY27. A high redemption bill (despite assumption of some switches) would bump up gross borrowing (to Rs 16 lakh crore).
“But growth in borrowing would still be below nominal GDP growth, making it manageable. The fiscal impulse will likely be near-neutral despite fiscal consolidation, helped by a lower quantum of consolidation and elevated receipts from RBI dividends again,” the report noted.
This quantum of consolidation is on the right path to meet the central government's public debt target for FY31.
However, state governments may see their public debt ratios rise for the next few years, as they do not have a similar consolidation path.
Thankfully, even after including states, overall gross market borrowing may grow slightly lower than nominal GDP growth (versus FY26, when growth in borrowing far exceeded NGDP), said the report.
On the domestic front, "we expect the state and centre deregulation drive to continue, manufacturing incentives for small firms, capex diversification to favour capex loans to states, and some rationalisation in subsidy and centrally sponsored schemes”.
“On the external front, we expect a significant exercise to rationalise customs duties, continued withdrawals of non-tariff barriers, and more openness to FDI across sectors,” said the report.
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