Union Budget 2026: Fiscal policy to turn pro-growth as government moves to target debt-to-GDP, economists say

Fiscal Policy Shift - The Indian government is shifting its focus from targeting the fiscal deficit to targeting the debt-to-GDP ratio starting April 2026, which is expected to support growth through a more modest pace of tightening [1][9] - The fiscal deficit is targeted to decrease to 4.4% of GDP for the year ending March 2026, down from 9.2% in 2020-21 [1][9] Debt Targets - Economists from Bank of America Securities project that the government will aim for a debt target of 55% of GDP by 2026-27, compared to the current level of approximately 57% [2][9] - Deutsche Bank and Axis Bank anticipate a fiscal deficit of 4.25% and 4.2%, respectively, with a long-term goal of reducing the debt-to-GDP ratio to 50% by 2030-31 [9] Borrowing Forecast - Gross borrowings are expected to rise to a record high, estimated between 16 trillion rupees and 17.50 trillion rupees ($174.7 billion to $191.1 billion), compared to 14.6 trillion rupees in the current year [5][6][9] - Net borrowings are projected to remain stable at 11.5 trillion rupees [6][9] Market Impact - The Indian bond markets are facing pressure due to heavy supply from federal and state government bonds, coinciding with a decline in demand from major buyers like insurance companies and pension funds [7][9] - Traders predict that if federal gross borrowing exceeds 16 trillion rupees, the trend of supply pressure will continue, with Nomura expressing caution regarding bonds due to these dynamics [8][9]