Budget 2026 shows commitment to macro stability, capex-led growth, says Fitch
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India’s Union Budget 2026 underscores the government’s continued commitment to maintaining macroeconomic stability through a gradual reduction in public debt while sustaining a robust capital expenditure programme to support growth, Fitch Ratings said on Monday.
While the Budget did not announce any major new reform measures, the rating agency said it expects further progress on reforms, particularly on deregulation, in the coming period. Fitch noted that strong GDP growth is already improving several of India’s sovereign credit metrics and, if sustained, could strengthen the country’s credit profile over time, even as fiscal challenges persist.
“Building on recent reform momentum should help accelerate private investment and give greater upside and resilience to India’s potential growth,” Fitch said.
Fiscal consolidation is likely to remain modest
The agency said fiscal consolidation is expected to remain modest, with the fiscal deficit targeted at 4.3% of GDP in FY27, only marginally lower than 4.4% in FY26. According to Fitch, the slower pace of consolidation reflects the increasing difficulty of reducing deficits further without weighing on economic growth.
The government has chosen to keep capital expenditure broadly stable at 3.1% of GDP in FY27, rather than pursue sharper consolidation, a move Fitch said likely aims to offset still-lagging private investment.
“India’s Budget demonstrates the ongoing commitment to maintaining macro stability through a gradual path of government debt reduction balanced against a still-robust capex programme to enhance growth prospects,” said Jeremy Zook, Director and Primary Sovereign Analyst at Fitch Ratings.
January 2026
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India’s GDP growth
Fitch forecasts India’s GDP growth at 6.4% in FY27, adding that the continued emphasis on capex should support both near- and medium-term growth prospects.
The agency also said that a growing track record of fiscal credibility—backed by greater transparency and improved spending quality—should strengthen India’s credit profile. While overall fiscal deficits remain higher than pre-pandemic levels, Fitch noted that this largely reflects higher capital spending, with the revenue deficit now narrower than before the pandemic, even after accounting for previously off-budget spending.
However, Fitch cautioned that general government deficits, debt and interest payments remain elevated compared with peer countries and are expected to decline only gradually.
Meanwhile, India’s manufacturing sector continued to expand in January. The HSBC Manufacturing Purchasing Managers’ Index rose to 55.4 in January from 55.0 in December 2025, according to S&P Global data, signalling sustained momentum in factory activity.