New Delhi, Feb 1 — In its latest economic analysis titled “Budget 2026–27: Reform Express,” the Economic Research Department of Bank of Baroda has described the Union Budget presented today as a strategic mix of growth acceleration and fiscal prudence, focused on reviving the economy, strengthening public investment, and embedding structural reforms across key sectors.
The report notes that the government’s macroeconomic projections indicate a recovery trajectory, with nominal GDP growth forecast at 10% for FY27 following softer momentum in FY26. The fiscal framework continues a defined consolidation path, with the fiscal deficit target set at 4.3% of GDP for FY27, and a medium-term commitment to reduce the debt-to-GDP ratio to around 50% by FY31.
Infrastructure & Capital Expenditure Drive Growth
Bank of Baroda highlighted the budget’s strong emphasis on infrastructure-led growth, with capital expenditure increased by 11.5% to ₹12.2 lakh crore, raising the capex-to-GDP ratio to 3.11%. Major allocations across roads, railways, defence, telecom, and urban housing are expected to sustain investment momentum and crowd in private sector investment—key to bolstering overall economic expansion.
Revenue Outlook and Tax Dynamics
The report underlined a projected 8% year-on-year growth in gross tax collections, buoyed by double-digit growth in both corporate and personal income taxes. Corporate tax buoyancy reflects ongoing earnings momentum, while indirect tax collections are expected to remain stable despite GST rationalisation measures. Notably, higher dividend transfers from the central bank and public sector banks, estimated at ₹3.9 lakh crore, will support non-tax revenues.
Borrowing Costs and Market Implications
Bank of Baroda observed that the government’s gross market borrowing of ₹17.2 lakh crore, though slightly above market expectations, leaves net borrowings stable—a factor that could lend comfort to bond markets. Analysts cited by the report see potential for the yield curve to exhibit a flattening bias due to elevated issuance in both short and long tenors.
Strategic Manufacturing and Infrastructure Initiatives
The “Reform Express” budget includes major initiatives to deepen India’s manufacturing base, with a focus on semiconductor production, rare earth mineral corridors, biopharma and chemical parks, and container manufacturing schemes. Infrastructure proposals, including expanded freight corridors, waterways, and high-speed rail networks, align with the government’s industrial modernisation agenda.
Financial Sector Reforms and Regulatory Changes
The report underscores proposals to set up a High-Level Committee on Banking for ‘Viksit Bharat’, aimed at reviewing the financial sector’s readiness to support future growth phases. Steps to deepen corporate and municipal bond markets, coupled with restructuring select public sector NBFCs, are expected to strengthen financial intermediation. A hike in Securities Transaction Tax (STT) on derivatives was also flagged as a market-moving change.
Simplification and Ease of Doing Business Measures
Significant tax policy refinements include the reduction of TCS rates under the Liberalised Remittance Scheme (LRS) for travel, education, and medical purposes, and lowering Minimum Alternate Tax (MAT) to 14%, made a final tax to simplify compliance burdens. An expanded digital tax infrastructure is anticipated to enhance administrative efficiency.
Social and Service Sector Boost
In addition to economic measures, the report points to strong allocations for healthcare, skill development, rural and agricultural support, MSMEs, and service sector growth—underscoring a balanced approach that targets employment generation and inclusive development.
Balanced Assessment
Bank of Baroda’s analysis concludes that the Union Budget for FY27 strikes a careful balance between sustained public investment and fiscal sustainability. The combination of enhanced capex, structural reforms, and tax reforms is expected to support stronger medium-term growth prospects by anchoring private investment confidence and broadening economic participation.
(Based on “Budget 2026–27: Reform Express,” Economic Research Department, Bank of Baroda)