S&P Global Ratings remains confident that India will meet its FY27 fiscal deficit target of 4.3%, even as GST revenues are expected to dip following the September 2025 rate rationalisation.

The rating agency said the Union Budget reflects strong fiscal discipline, with a clear roadmap for consolidation—targeting a 4.4% deficit in FY26 and 4.3% in FY27. At the same time, it balances growth and spending priorities. S&P added that stronger consumption and improved tax collection efficiency could still provide upside to GST revenues.

Support for meeting the deficit target is also expected to come from higher dividends from the central bank. Additionally, the possibility of underspending on capital expenditure could further support deficit goals, it noted.

S&P expects India’s real GDP growth to remain robust at 6.7% in FY27 and 7% in FY28. This would keep the country ahead of peers at similar income levels and supporting revenue growth. Lower GST rates, combined with income tax cuts, are likely to boost middle-class consumption. As a result, consumption will be a bigger driver of growth than investment in the near term.

To offset the impact of high US tariffs on exports, the FY27 Budget emphasises investment-led growth. It raises capital outlay to 5.6% of GDP from 5.1%. The government is also targeting a 49–51% debt-to-GDP ratio by FY31. Furthermore, there will be a focus on manufacturing, infrastructure, and potential trade deals with the US to support labour-intensive sectors.

S&P added that a trade agreement with the US could reduce uncertainty and improve confidence. This could give an additional boost to growth.

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