Union Budget 2026: FM may maintain FY27 fiscal deficit at 4.4%, same as FY26; here's what Nuvama expects

As the Budget 2026 approaches, the finance minister may not further tighten the fiscal stance in FY27, with Nuvama suggesting the government could choose to keep the deficit unchanged at the FY26 level.

In its latest report, Nuvama said the Indian economy looks to be nearing a bottom, but added that momentum remains fragile. While tax cuts announced in 2025 have lifted consumption in certain areas, the firm said the impact may not translate into a broader demand revival, as spending cuts are expected to help the government meet its FY26 gross fiscal deficit (GFD) target of 4.4 per cent of GDP.




Highlighting the need for policy support, the report stated, "For FY27, monetary easing done so far must be complemented with fiscal support to enhance its effectiveness. Hence, while fiscal expansion is unlikely, we forecast the FM would refrain from further consolidation in FY27".

Nuvama expects that rather than moving towards deeper consolidation, the Budget could pause the tightening trajectory and maintain the fiscal deficit at 4.4% of GDP in FY27, the same level projected for FY26.

To deliver stronger growth despite limited fiscal room, the report said the government may have to lean on large-scale disinvestments or push public sector undertakings (PSUs) to raise capital expenditure, which it noted has been subdued for several years.

The report also flagged the possibility of non-fiscal measures to support growth. These could include deregulation, credit-guarantee schemes and initiatives to improve the ease of doing business. A credit guarantee scheme for microfinance institutions (MFIs), aimed at supporting low-income borrowers, may also be considered.

From the market’s point of view, Nuvama said higher development spending and increased capex would be positive signals, but warned they may not be enough to arrest the earnings downgrade cycle. It added that margins could see mean reversion and external headwinds remain a key risk.

Given these factors, the brokerage said it continues to maintain a defensive stance, while noting that any changes to capital gains taxation could shape market sentiment in the near term.

Nuvama added that while FY26 priorities were tilted towards lifting consumption through tax rationalisation, FY27 could move towards encouraging investment through deregulation. It expects continued attention on sectors such as semiconductors, AI and robotics, and exports.

Overall, the report said the FY27 Budget could be mildly supportive for growth, though the pace of recovery is likely to stay modest.