Budget 2026: Buoyant revenues offer room to sustain govt capex, push fiscal consolidation, says ICICI Bank report

Buoyant Revenues Pave Way for Balanced Budget Strategy

A recent pre-Budget analysis from ICICI Bank Global Markets points to promising revenue trends that could shape India's Union Budget for 2026-27. With collections expected to surge on a low base and rising demand, the government might maintain its capital expenditure at around 3.1 percent of GDP. This level of spending, pegged at roughly Rs 11.21 lakh crore in the previous year, has been a key driver of economic growth through infrastructure projects.

The report underscores that both tax and non-tax revenues are set to remain strong, offering much-needed fiscal space. In the face of global challenges like slowing growth and trade tensions, this buoyancy comes as welcome news. Policymakers now have flexibility to prioritize infrastructure without derailing efforts to narrow the fiscal deficit. The upcoming budget, due on February 1, will test this balancing act amid domestic demand picking up steadily.

For 2025-26, fiscal measures including income tax and GST adjustments totaled about 0.9 percent of GDP to stimulate the economy. While these boosted private consumption, they tempered tax inflows, potentially requiring spending restraint to hit the 4.4 percent deficit target. Looking ahead, the outlook brightens significantly for the next fiscal year.

Infrastructure Push Remains Central to Growth Agenda

Government capex has emerged as the bedrock of India's expansion strategy, fueling projects in roads, railways, urban development, and defense. The ICICI Bank report anticipates this momentum to continue, with allocations possibly climbing to Rs 12-13 trillion in 2026-27, marking a 10-15 percent rise from prior levels. Such investments not only create jobs but also crowd in private sector participation, vital for long-term competitiveness.

Real GDP growth is projected around 7.4 percent for FY26, bolstered by these expenditures, resilient services exports, and improving private investment sentiment. However, uneven global conditions and moderating consumption call for prudence. The report emphasizes sustaining capex as the primary growth engine while aligning with the vision of Viksit Bharat by 2047, focusing on inclusive, investment-led progress.

Experts note that steady infrastructure outlays signal commitment to structural transformation. From enhancing logistics to bolstering green initiatives, these spends address both immediate needs and future aspirations. As markets watch closely, a budget upholding this focus could reinforce investor confidence in India's resilient economy.

Sustaining Fiscal Consolidation Amid Global Headwinds

"This gives government room to keep capex at 3.1% of GDP while continuing on the path of consolidation," the ICICI Bank report states, highlighting the favorable revenue dynamics for 2026-27 that ease longstanding trade-offs between growth and discipline.

Achieving a fiscal deficit of 4.2 percent in 2026-27 appears feasible with elevated non-tax receipts and buoyant collections. This trajectory aligns with medium-term goals, reassuring markets amid geopolitical risks and volatile capital flows. The analysis stresses careful prioritization, especially after 2025-26's stimulus weighed on revenues despite demand recovery.

India's fiscal strategy now hinges on leveraging domestic strengths like robust services and gradual private capex revival. By sustaining public investment without fiscal slippage, the budget could position the economy for durable expansion. Stakeholders await details on sectors like urban infra and indigenization, which promise multiplier effects across the board.

In summary, the ICICI Bank report paints an optimistic picture for Budget 2026-27, where stronger revenues enable steady capex at 3.1 percent of GDP and a fiscal deficit glide path to 4.2 percent. This approach balances infrastructure-led growth with discipline, navigating global uncertainties effectively.