Economic experts have recommended a strategic approach for fiscal consolidation in the upcoming budget, suggesting the government reduce the fiscal deficit to 4.0% of GDP in 2026-27 while maintaining growth momentum through sustained capital expenditure. The recommendations come amid concerns over revenue shortfall and the need to support private investment.

Economic Projections and Revenue Estimates

The nominal GDP magnitude for 2025-26 is estimated at ₹357.14 lakh crore. Applying a nominal growth rate of 9.5%, the figure for 2026-27 is projected at ₹391.10 lakh crore. However, revenue collection has shown concerning trends during the current fiscal year.

For the period April to November 2025-26, the Centre's gross tax revenues have shown growth of only 3.3% compared to the budgeted full-year growth of 10.8%, according to Controller General of Accounts data. While GTR growth may improve in the remaining four months, it would still fall short of budgeted expectations.

Fiscal Consolidation Strategy

The experts suggest reducing the fiscal deficit-to-GDP ratio to 4.0% in 2026-27, representing a 40 basis points decline. This would limit the fiscal deficit magnitude to ₹15.83 lakh crore, which appears achievable with appropriate adjustments.

The revenue shortfall may be partially offset by:

• Two newly introduced measures relating to central excise tax on tobacco and tobacco products
• Health Security and National Security Cess
• Higher dividends from the Reserve Bank of India
• Potential cuts in revenue expenditures

Budget Estimates for 2026-27

The experts have provided detailed estimates for various fiscal aggregates, assuming a tax buoyancy of 1 and nominal GDP growth rates for certain components.

To accommodate the proposed fiscal deficit reduction of 0.4 percentage points of GDP, the revenue expenditure-to-GDP ratio would need adjustment from 10.7% in 2025-26 to 10.3%, while increasing the capital expenditure-to-GDP ratio by 0.1 percentage points.

Investment and Consumption Outlook

The real gross fixed capital formation-to-GDP ratio has remained relatively stable at approximately 33.6% on average during 2022-23 to 2024-25, with a marginal increase to 33.8% in 2025-26 according to first advance estimates. Despite extensive GST rate reductions and sustained repo rate cuts providing policy support for consumption expenditure growth, private investment has not shown significant pickup.

The experts emphasize the need to explore reasons behind sluggish private investment and suggest that investment sentiments may improve after global supply bottlenecks ease and global growth picks up. They recommend the Centre continue supporting growth by maintaining capital expenditure momentum while facilitating more sectoral-level interventions in the upcoming budget.

As Union Budget 2026 approaches, tax professionals across India are sending a clear message to the government: prioritise stability and administrative efficiency over dramatic policy changes. With the new Income-tax Act 2025 scheduled to take effect from April 1, 2026, experts are advocating for a measured approach that allows recent reforms to settle while addressing longstanding compliance challenges.

Call for Policy Stability

Anil Harish, Partner at D.M. Harish & Co., emphasises that the most meaningful reform would be the absence of reform itself. He warns that amending the Income-tax Act 2025 before it comes into force would signal policy instability. According to Harish, the new Act primarily streamlines language and structure without significantly departing from the 1961 framework.

Administrative Reforms Take Priority

Ankit Rajgarhia, Designate Partner at Bahuguna Law Associates, notes that professionals are urging the finance minister to prioritise administrative fixes over headline-grabbing tax cuts. The focus areas include reducing TDS rates, simplifying withholding compliance, and accelerating dispute resolution to address the mounting backlog of income-tax appeals. For salaried taxpayers, key demands include higher standard deductions and clearer rules within the new tax regime.

Corporate and Investment Concerns

On the corporate front, manufacturing companies are seeking the reintroduction of concessional tax regimes to encourage new investments and job creation, according to Kunal Savani, Partner at Cyril Amarchand Mangaldas. He highlights significant gaps in digital economy taxation, particularly for crypto assets and derivative-based transactions, where the current framework imposes 30% tax on gains without allowing expense deductions or loss set-offs.

NRI Compliance Bottlenecks

Non-resident Indians face specific challenges that require targeted solutions. Aarjav Jain, Executive Director at Dinesh Aarjav & Associates, highlights growing digital bottlenecks in income tax compliance. Aadhaar-linked OTP requirements and net banking access failures have prevented many NRIs from completing return verification or receiving refunds despite timely filings.

Key NRI Issues:

• Double taxation of foreign retirement accounts
• Cumbersome TDS procedures on property sales
• Foreign tax credit mismatches due to differing financial years
• Digital verification challenges

GST and Indirect Tax Expectations

Indirect tax experts are closely monitoring GST reforms. Jitendra Patel, Partner – Indirect Tax at N A Shah Associates LLP, notes that while GST 2.0 aims to simplify rate structures, compliance remains demanding for small businesses. Priority areas include stable return formats, resolution of legacy Input Tax Credit mismatches, clarity on real estate GST issues, and faster operationalisation of the GST Appellate Tribunal.

Senior Citizens and Social Security

CA Pretti Malhotra of Wise Finserv addresses the lack of meaningful social security for retirees dependent on interest income. She advocates for a separate lower tax bracket for senior citizens without pensions, clarity on National Pension System taxation, rationalisation of notional rent provisions, and expedited refund processes.

Transition and Implementation Challenges

CA Suresh Surana emphasises the need for explicit grandfathering provisions covering losses, credits, incentives, and pending proceedings during the transition from the 1961 Act to the Income-tax Act 2025. He supports reducing penal provisions and moving away from aggressive enforcement, particularly for technical rather than wilful defaults.

The consensus among tax professionals reflects a desire for measured governance that prioritises compliance simplification and dispute reduction over sweeping policy overhauls. As Budget 2026 approaches, the emphasis remains on creating a stable, predictable tax environment that supports both taxpayer confidence and administrative efficiency.