New Delhi, January 12: The Union Budget 2026 is likely to set 8.5-9% growth for next year and increase capital expenditure to Rs 12-12.2 lakh crores, said Sonal Badhan, Economist at Bank of Baroda.
"We expect the government to meet its fiscal deficit target of 4.4% for the Financial Year 2026 (FY26). For next year, we estimate that the deficit ratio will be lowered by 30-40bps (4-4.1%). Capex allocation will be of key interest. In the ongoing fiscal year, the government has already met approximately 60% of the budgeted target till Nov'25," Sonal said in an email interview with ANI.
Another piece of information to note is the assumption of nominal GDP for next year. We expect this number to be around 10%, she said.
She added that further income tax or indirect tax cuts are unlikely, as last year's Budget and GST 2.0 rationalisation had largely addressed those concerns.
The BoB Economist highlighted that amid intensifying global headwinds, the upcoming Budget is expected to prioritise MSMEs and export-oriented sectors.
"Given the current global environment, it is likely the upcoming budget will focus on MSMEs and export-oriented sectors. Custom duty slabs were reduced to 8 last year. Measures were also taken to ease compliance (duties on select raw materials were lowered, the list of exempted items was consolidated)," she said.
This year, further rationalisation may take place. Additional raw materials may see a reduction in customs duties, further lowering the average customs duty rate. Interest subvention scheme could also be announced for MSMEs and exporters, she highlighted.
Speaking on the forecast for the policy rate in 2026, the BoB Economist said that, in its final policy for FY26, the RBI may cut its policy rate by another 25 bps to boost growth further.
"Although it seems unlikely that the central bank will be tweaking its GDP and inflation forecasts. The first advance estimate of FY26 GDP (7.4%) is broadly in line with the RBI's estimate (7.3%). More OMOs can be announced to support liquidity," she said.
While public capex remains strong, private investment has been selective. However, she noted signs of revival in private investment momentum.
Off late, we have seen a revival in private investment momentum. To help the private sector maintain this, the government's flagship scheme, PLI, may see some changes, she said.
The BoB Economist said the government may announce measures to align production incentives with its vision of Atmanirbhar Bharat. "Currently, R&D is supported in PLI schemes related to each industry (for example, in the semiconductors). However, a separate PLI for R&D may be announced to attract innovations across sectors. Additional new-age sectors, such as AI, space exploration, and robotics, can also be added to the list. This will also boost FDIs," she said.
Speaking on risk, she said external headwinds remain a concern, but given the current global scenario, which keeps evolving very rapidly, these risks have to be dealt with along the way.
"More FTAs, decline in average customs duties, correction of inverted duty structure, interest subvention scheme for exporters can be helpful in maintaining our growth momentum," she added.
Disinvestment and asset monetisation are expected to remain a small but steady component of government revenues. Badhan noted that in FY26, asset monetisation contributed more than disinvestment, a trend likely to continue in FY27. (ANI)
