Nomura said on Thursday that the Centre will focus on both fiscal consolidation and growth supportive measures in the Budget 2025-26 and may bring changes in personal income tax slabs to boost consumption. Nomura expects India to breach its fiscal deficit target for FY 2025 and estimates the deficit at 4.8% of GDP, lower than earlier forecast of 4.9%.
This is because of capex spending reduction. For FY 2026, Nomura sees capex at 4.4% of GDP, in line with India's medium term targets.
It also sees public capex growing 12.5% y-o-y in FY 2026. The budget may have measures like lower corporate tax for companies setting up manufacturing hubs in India, lower customs duty on intermediate goods, higher investment in agriculture.
Also Nomura expects higher import duty on gold, FDI limit in insurance sector to be expanded and steps to attract capital to support rupee.
On borrowing, Nomura sees India's gross borrowing slightly higher in FY 2026 at Rs 14.4 lakh crore vs Rs 14 lakh crore in current year. But this could come down if the government does more buybacks in the next few weeks.
Net borrowing to come in at Rs 11.03 lakh crore, down by Rs 60,000 crore from FY 2025.
Much of good news already priced in, yet Indian government bonds still a good story.
Risks asymmetric. Balancing budget will keep India's fiscal risk premium low. That will give RBI more room to cut rates in the February MPC.
