New Delhi: Global financial services company Nomura on Thursday said the Centre will focus on both fiscal consolidation and growth-supportive measures in the upcoming Union Budget for 2025-2026, predicting that the government may introduce changes to the personal income tax slabs to encourage consumer spending.
Nomura expects India to surpass its fiscal deficit target for the financial year 2025, estimating the deficit at 4.8 per cent of the GDP, slightly lower than the earlier forecast of 4.9 per cent.
This change is due to a reduction in capital expenditure (capex) spending. For FY 2026, Nomura forecasts that capex will remain at 4.4 per cent of GDP, in line with India’s medium-term goals.
It also expects public capital expenditure to grow by 12.5 per cent year-on-year in FY 2026. The budget may include measures such as a lower corporate tax rate for companies operating manufacturing hubs in India, reduced customs duties on intermediate inputs, and higher investment in agriculture.
Additionally, Nomura foresees an increase in the import duty on gold, an expansion of the foreign direct investment (FDI) limit in the insurance sector, and steps to boost capital inflows to support the rupee.
On borrowing, Nomura predicts that India’s gross market borrowing will rise slightly in FY 2026, reaching Rs 14.4 lakh crore, compared to Rs 14 lakh crore in the current year. However, this number could decrease if the government conducts more buybacks in the coming weeks.
The firm expects net market borrowing to drop to Rs 11.03 lakh crore, a decline of Rs 60,000 crore from FY 2025.
Looking ahead, Nomura believes that while much of the positive fiscal news may already be priced into the market, Indian government bonds remain an attractive investment.
The firm sees the risks related to the upcoming budget announcement as asymmetric, suggesting that the government’s balanced approach will help keep India’s fiscal risk premium low. This, in turn, would give the Reserve Bank of India (RBI) greater flexibility to lower its policy rate during the February Monetary Policy Committee (MPC) meeting.