Budget FY26 may set 9% growth target for next year, raise capex to Rs 12-12.2 lakh crore
New Delhi: The Union Budget 2026 is likely to peg economic growth at 8.5–9 per cent and raise capital expenditure to Rs 12–12.2 lakh crore, according to Sonal Badhan, economist at Bank of Baroda.
She expects the government to meet its fiscal deficit target of 4.4 per cent for FY26 and further reduce it by 30–40 basis points to around 4–4.1 per cent next year. Capital expenditure will be a key focus, with nearly 60 per cent of the current year’s budgeted capex already achieved by November 2025. Nominal GDP growth for next year is estimated at around 10 per cent.
Badhan said further income tax or indirect tax cuts are unlikely, as major reforms were undertaken in last year’s Budget and under GST 2.0. Amid global headwinds, the upcoming Budget is expected to prioritise MSMEs and export-oriented sectors. Further rationalisation of customs duties may be announced, including lower duties on additional raw materials, which could reduce the average customs duty rate. An interest subvention scheme for MSMEs and exporters is also possible.
On monetary policy, she said the RBI could cut the policy rate by another 25 basis points in its final FY26 review to support growth, while keeping GDP and inflation forecasts largely unchanged. Additional open market operations may be used to support liquidity.
While public capex remains strong, private investment has been selective, though signs of revival are emerging. To sustain momentum, changes may be introduced in the production-linked incentive (PLI) scheme. A separate PLI for research and development could be announced to promote innovation across sectors, including AI, space exploration and robotics, and attract higher foreign investment.
She added that external risks remain, but measures such as more free trade agreements, lower customs duties, correction of inverted duty structures and export incentives could help sustain growth. Disinvestment and asset monetisation are expected to remain modest but steady revenue sources.
