Union Budget 2026–27 May See 10% Rise in Capital Expenditure: SBI Report

New Delhi: The Centre’s capital expenditure is likely to cross Rs 12 lakh crore in the upcoming Union Budget for 2026–27, marking an estimated 10 per cent increase over the previous financial year, according to a report released by the State Bank of India (SBI) on Wednesday.

Such a rise in capex would allow the government to intensify investment in major infrastructure sectors, including highways, railways, ports and power, with the aim of accelerating economic growth and job creation.

The report notes that the FY27 Budget will be presented amid growing global uncertainty and economic fragmentation. In this environment, it underscores the importance of India continuing its path of fiscal prudence, especially as rising global debt poses risks to economic stability. It also highlights that India’s post-pandemic recovery has been stronger than its rebound after the global financial crisis.

SBI expects only moderate growth in tax revenues and largely flat non-tax revenues in FY27. Nominal GDP growth relevant for budget calculations is projected at around 10.5–11 per cent, partly driven by the potential spillover of higher global commodity prices into wholesale price inflation. Based on these assumptions, the fiscal deficit for FY27 is estimated at around 4.2 per cent of GDP, although the adoption of a new GDP series could alter the fiscal calculations.

On borrowing, the report suggests there could be a positive surprise, with net central government borrowing for FY27 estimated at Rs 11.7 trillion and repayments at Rs 4.87 trillion. State governments’ gross borrowings are projected at Rs 12.6 trillion, with repayments of Rs 4.2 trillion. To manage these borrowing requirements, the Reserve Bank of India may need to step up open market operations, the report said.

The SBI report also recommends that the Union Budget include measures to encourage higher financial savings. These include aligning the tax treatment of interest income on deposits with long-term and short-term capital gains, reducing the lock-in period for tax-saving fixed deposits to three years in line with equity-linked savings schemes (ELSS), and raising the threshold for tax deducted at source (TDS) on interest earned from bank deposits.

In the area of indirect taxes, the report suggests amending the definition of an input service distributor to improve clarity and reduce litigation. It also recommends that GST-related TDS should not be applicable to banking services.

Additionally, the report stresses the need for wide-ranging reforms in the insurance and pension sectors to improve penetration levels.

It further points out that since states contribute significantly to overall government debt, state budgets should clearly outline medium-term, preferably scenario-based, debt-to-GSDP paths aligned with realistic growth assumptions and development priorities, rather than focusing only on annual deficit targets. The report suggests that the Union Budget could draw attention to this aspect.

With inputs from IANS