India at Economic Crossroads Ahead of Budget 2026; HSBC Sees Focus on Restraint and Reforms
Canva
India stands at a critical economic juncture ahead of the Union Budget to be presented on February 1, with global brokerage HSBC expecting the government to balance fiscal restraint with structural reforms. In its pre-Budget note, HSBC said tailwinds such as easing inflation and strong non-tax revenues could help the Centre consolidate finances while supporting growth.
Nominal GDP Growth Seen Picking Up
HSBC expects India’s nominal GDP growth to improve to around 10% in FY27, up from a relatively weak 8% in the first half of FY26. The brokerage attributed this recovery largely to the normalisation of wholesale price inflation. A stronger nominal GDP, HSBC said, would support corporate earnings, tax collections and fiscal consolidation, even as inflation remains low enough for the RBI to stay growth-supportive.
Fiscal Deficit to Narrow Further
The brokerage believes the government will meet its FY26 fiscal deficit target of 4.4% of GDP, aided by elevated non-tax revenues and controlled current expenditure. For FY27, HSBC forecasts a further narrowing of the fiscal deficit to 4.2% of GDP, keeping India on track to meet its FY31 public debt targets.
Capex and Borrowing Outlook
Capital expenditure in FY26 has been frontloaded, with strong allocations to roads, railways and defence. While spending may slow in the March quarter to manage fiscal arithmetic, HSBC expects FY27 capex to remain steady as a share of GDP, rising in absolute terms to about ₹12.3 trillion. Net market borrowing is seen unchanged at ₹11.5 trillion in FY27, with overall borrowing remaining manageable as long as it stays below nominal GDP growth.
Reforms in Spotlight
HSBC expects reforms to take centre stage, including deregulation, subsidy rationalisation, customs duty reforms and greater openness to foreign investment.
Our Thoughts
HSBC’s outlook suggests Budget 2026 will be less about big spending announcements and more about credibility, discipline and reforms. At this crossroads, consistent policy execution could be the key to sustaining India’s growth momentum beyond FY27.