The Union Budget 2026 has reaffirmed the government’s focus on fiscal consolidation, though a sharper-than-expected rise in gross borrowing could dampen market sentiment, according to Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank.
Commenting on the Budget, Bhardwaj said the fiscal deficit target for FY27 has been pegged at 4.3 per cent, a level that broadly aligns with market and institutional expectations. Net market borrowing has also been kept in line with projections, underscoring the government’s intent to stay on a calibrated path of fiscal discipline. “The government has continued to focus on fiscal consolidation. The FY27 fiscal deficit at 4.3% and net borrowing is in line with our expectations,” she said.
However, Bhardwaj cautioned that the gross borrowing number has come as a surprise. The government has projected gross borrowing of Rs 17.2 trillion for FY27, which is significantly higher than anticipated. “The sharply higher than expected gross borrowing of Rs 17.2tn is expected to weigh heavily on market sentiments,” she noted.
She further pointed out that the absence of bond buybacks or switches in the borrowing programme contributed to the unexpected increase in gross borrowing. “No buybacks or switches have led to the surprise upside to the gross borrowing,” Bhardwaj said.
While the Budget maintains its commitment to fiscal prudence, the borrowing strategy may pose near-term challenges for bond markets and investor confidence.
