India continues to remain the bright spot globally, supported by its strong macro fundamentals and the government should focus on adherence to fiscal prudence and continue the fiscal consolidation path, a new report has suggested.
Nominal GDP growth for FY26 is expected at 10.2 per cent, “assuming a real GDP growth of 6.2 to 6.4 per cent and inflation of 4 to 3.8 per cent,” according to the report by SBI Research ahead of the Union Budget 2025-26.
“So, the Nominal GDP would be Rs 357.2 lakh crore,” the report predicted.
The fiscal deficit as per cent of the GDP may come at 4.5 per cent in FY26 (Rs 15.9 lakh crore).
“However, we must also appreciate that in a world of uncertainties mostly for the external sector, there is no harm in the glide path being tinkered a bit to give growth a leg up,” the report argued.
Gross market borrowing (Rs 14.4 lakh crore) can be expected in FY26 due to an increase in redemptions, when part of the Covid-19 pandemic borrowings are due for repayment, resulting in a net borrowing of Rs 11.2 lakh crore (Rs 4.05 lakh crore redemption in FY26 and expected switch of Rs 75,000 to 100,000 crore).
The government has already conducted Rs 1.1 lakh crore buyback and Rs 1.46 lakh crore switches so far in FY25.
“Communication from policy-makers as also the regulators needs to be crystal clear, and front loaded in market participants expectations. Schemes like Just-In-Time (JIT) that may have an effect on systemic liquidity need careful recalibration, keeping in mind the first order, as also the second order impacts,” according to the report.
When it comes to GST, there is a need for second round of reforms in GST (GST 2.0) with the rationalisation of tax rates and inclusion of electricity tariff, then Aviation Turbine Fuel and finally petrol/diesel, the report said.
PRELUDE TO UNION BUDGET 2025-26
FY26 budget could be built on the edifice of: Social Security, Financial Stability, Health Care and Consumption …We envisage the pareto optimal solution of Rationalizing Direct taxes across various options with least revenue loss / Rs 50,000 crores / a meagre 0.14% of GDP and maximum
gains to consumer as following (a) Remove all exemptions and bring all under new tax regime, but retain and enhance the NPS limit from Rs 50,000 to Rs 1 lakh and enhance medical insurance exemption to Rs 50,000 from Rs 25,000 (b) Tax rates to be rationalised at 15% from 20% at Rs 10-15 lakhs income bucket (c) 15% tax on deposits and across all maturities and such tax treatment should be same like other asset classes, i.e. clubbing it in other income and taxing it at redemption and not accrual basis and increasing Savings Bank tax exemption limit to Rs 20,000.
India INC should match up Government efforts and efficiency without much further ado