India’s upcoming budget is expected to maintain its path of fiscal consolidation, though at a more gradual pace. Analysts at Jefferies forecast a fiscal deficit target of around 4.2% of GDP for FY27, a significant reduction from the 9.2% peak seen in FY21. The government is likely prioritizing stability over aggressive cuts.

A large dividend from the Reserve Bank of India is again anticipated to bolster the fiscal position. Jefferies estimates this payout could rise 10-15% to approximately Rs 3 trillion, helped by rupee depreciation. This financial support is crucial for meeting deficit targets, especially if tax collection growth weakens in the coming fiscal year.

Capital expenditure is slated to grow about 12% to Rs 12.5 trillion, with defence spending taking priority. A potential 25% increase in defence capex follows 57% growth year-to-date in FY26. Meanwhile, any central government pay hikes, linked to the next Central Pay Commission, could widen the deficit by 20-30 basis points, with states adding further pressure.