New Delhi is bracing for a significant push in infrastructure spending as the government eyes a 10% increase in capital expenditure for the 2026-27 fiscal year, potentially surpassing Rs 12 lakh crore. This projection comes from a detailed State Bank of India (SBI) report released on Wednesday, signaling a robust strategy to fuel economic growth amid global headwinds.
The anticipated hike will channel funds into critical sectors like highways, railways, ports, and power projects. Such investments are poised to accelerate India’s GDP trajectory while generating substantial employment opportunities across the nation. Economists highlight that this capex surge could act as a multiplier for private investments, creating a virtuous cycle of development.
Timing couldn’t be more crucial. With the global economy grappling with uncertainties and fragmentation, India’s fiscal discipline remains a cornerstone. The report warns that escalating global debt could undermine economic stability, underscoring the need for prudent budgeting. Notably, India’s post-COVID recovery has outpaced the rebound following the global financial crisis, positioning the country as a bright spot.
Revenue projections paint a mixed picture: modest gains in tax collections with non-tax revenues holding steady. Nominal GDP growth is forecasted at 10.5-11%, influenced by rising international commodity prices that may stoke wholesale inflation. Consequently, the fiscal deficit is expected to hover around 4.2% of GDP, subject to revisions from the new GDP series.
On borrowing, positive signals emerge. Central government’s net borrowing could reach Rs 11.7 lakh crore, with repayments at Rs 4.87 lakh crore. States might borrow Rs 12.6 lakh crore while repaying Rs 4.2 lakh crore. To manage liquidity, the RBI may ramp up open market operations (OMO).
The SBI report offers actionable recommendations to boost financial savings. These include aligning interest income taxation on bank deposits with long-term (LTCG) and short-term capital gains (STCG) regimes, matching lock-in periods for tax-saving fixed deposits to ELSS mutual funds (3 years), and raising the TDS threshold on deposit interest.
For indirect taxes, reforms like redefining Input Service Distributor (ISD) aim to reduce ambiguities and litigation. Exempting TDS on GST for banking services is another key suggestion. The report also calls for expanding insurance and pension coverage through sector-specific reforms.
State finances warrant attention, as they bear a significant debt burden. SBI urges clear medium-term borrowing frameworks tied to GSDP and development needs, rather than mere annual deficit targets. Highlighting this in the Union Budget could set a new standard for fiscal federalism.
As Budget 2026-27 approaches, these insights from SBI could shape policy, balancing growth ambitions with sustainability in an unpredictable world.
