Budget 2025 expectations: Centre to bring down fiscial deficit at 4.4% by FY 2026? See Nomura's projections

With the Union Budget 2025-26 around the corner, Finance Minister Nirmala Sitharaman is expected to maintain a balance between fiscal discipline and economic growth. A report by global financial services firm Nomura suggests that while the government is likely to stay on the path of fiscal consolidation, it may also introduce targeted measures to give the economy a push.  

According to a Nomura report, FY 2026 capex will remain at 4.4 per cent of GDP, in line with India's medium-term goals. The brokerage firm said that India is expected to surpass its fiscal deficit target for FY 2025, with the deficit estimated at 4.8 per cent of GDP, slightly lower than the earlier forecast of 4.9 per cent, due to a reduction in capital expenditure (capex) spending. 

Here's a look at key projections by Nomura for Union Budget 2025-26:

Tax and investment policies

To stimulate consumer demand, the report suggests potential changes to personal income tax slabs. The government may also introduce a concessional corporate tax scheme to incentivise domestic manufacturing and attract global value chains under the ‘Make in India’ initiative. Additionally, Nomura expects reductions in customs duties on intermediate goods and higher import duties to counter cheap Chinese imports.

Public capex is projected to grow by 12.5 per cent year-on-year in FY 2026, with a particular focus on infrastructure and agriculture. Lower corporate tax rates for manufacturing hubs and increased investment in the agricultural sector are likely to be among the key measures.

Trade and external sector

Nomura foresees an increase in import duties on gold, alongside a potential expansion of foreign direct investment (FDI) limits in the insurance sector. The government is also expected to take steps to boost capital inflows to stabilise the rupee, amid concerns over currency depreciation risks.

Borrowing and market Impact

India’s gross market borrowing is projected to rise slightly to Rs 14.4 lakh crore in FY 2026, compared to Rs 14 lakh crore in the current financial year. However, this figure could decrease if the government undertakes further buybacks in the coming weeks. Meanwhile, net market borrowing is expected to decline to Rs 11.03 lakh crore, reflecting a reduction of Rs 60,000 crore from FY 2025.

Nomura also highlighted that Indian government bonds remain an attractive investment, with fiscal risks appearing relatively low. The balanced approach in the upcoming budget could provide the Reserve Bank of India (RBI) with more flexibility to lower its policy rate in the upcoming Monetary Policy Committee (MPC) meeting in February.

The global financial services report also pointed last year's budget speech, which stated that from FY27 onwards, the "endeavor will be to keep the fiscal deficit each year such that the central government debt will be on a declining path as a percentage of GDP."  Quoting that the report anticipates that the upcoming budget will provide more clarity on medium-term fiscal rules. 

But is a fiscal deficit target of 4.4 per cent of GDP feasible in FY26? Here's what Nomura's report suggests: 

According to Nomura, the government is likely to factor in a recovery in corporate tax collection growth from this year’s weak levels while expecting the current momentum in income tax collections to continue. On the indirect tax front, assumptions for GST and customs duty collection growth are expected to be similar to FY25. Additionally, the government is likely to maintain the current disinvestment target outlined in the budget.

(With IANS Inputs)