Global uncertainty has displaced domestic inflation as the primary concern among economists ahead of the FY27 Budget, according to a comprehensive poll of 20 economists. This shift reflects growing apprehension about external factors that could impact India's economic trajectory, marking a significant change in priorities from previous budget cycles.

Primary Economic Concerns

The poll results reveal a clear hierarchy of concerns among economists:

Yuvika Singhal, economist at QuantEco Research, highlighted specific risks: "No trade deal with the US could impact labour-intensive sectors leading to unemployed workers." This sentiment reflects broader concerns about trade relationships and their potential impact on employment-intensive industries.

Investment Dynamics and Fiscal Projections

Private investment concerns have gained prominence as public capex growth shows signs of moderation. The poll indicates that capex is expected to rise to Rs 12 lakh crore, though this would represent 3.05 percent of GDP compared with 3.14 percent in the previous fiscal.

Abhishek Upadhyay of ICICI Securities expressed cautious optimism while noting structural challenges: "Even as growth is fine, it's not clear this will be a self-sustaining recovery given global risks and role of one off domestic tailwinds in FY26."

Dipti Deshpande, economist at Crisil, emphasized the transition challenge: "A quicker pick-up in private corporate investment given that govt capex will need to start moderating to meet fiscal consolidation objectives."

Growth Projections and Policy Expectations

Economists forecast nominal growth to hit 10.1 percent of GDP in the coming fiscal, suggesting underlying economic resilience despite external headwinds. The poll reveals strong expectations for continued government support in key sectors:

Sectoral Support and Export Competitiveness

The survey indicates widespread expectation for targeted sectoral interventions. Deshpande outlined specific areas where support is anticipated: "Measures that help improve export competitiveness - especially through lower power and logistics costs and further easing of regulatory constraints."

Particular attention is expected for MSMEs, given their significant role in export-intensive sectors. "Given that significant role of MSMEs in export-intensive sectors such as textiles, leather, and plastics which have been disproportionately affected, the budget could be expected to announce more targeted support to the MSME segment," Deshpande added.

Shifting Risk Landscape

The poll results demonstrate a notable shift in economist priorities, with traditional concerns like inflation, exchange rates, and credit conditions receiving relatively fewer mentions. This suggests that while domestic macro conditions are viewed as relatively stable, external factors have become the predominant source of uncertainty for India's economic outlook.

As India prepares to unveil the Union Budget for FY27 on February 1 amid heightened geopolitical and trade uncertainty, Goldman Sachs has distilled investor concerns into five core questions. The brokerage's budget preview highlights slower fiscal consolidation, tighter spending choices and sustained pressure on government borrowing even as growth remains resilient.

Fiscal Deficit Targets and Revenue Challenges

Goldman Sachs expects the government to meet the FY26 fiscal deficit target of 4.4% of GDP, but only through expenditure cuts. The brokerage projects a shortfall of about 0.5% of GDP in overall receipts, driven by weaker income tax and GST collections and lower-than-budgeted disinvestment proceeds.

The brokerage believes the shortfall in receipts will be met by expenditure cuts in current and capital expenditure to achieve the budgeted fiscal deficit target.

Medium-Term Consolidation Path

For FY27, Goldman Sachs expects the fiscal deficit to narrow to around 4.1% to 4.3% of GDP, with a baseline projection of 4.2%, down from 4.4% in FY26. However, the pace of consolidation is likely to be slower than in the previous two years as the government preserves flexibility to respond to external shocks.

The government is likely to lean towards the upper end of the range to retain space to support affected sectors if US trade uncertainty persists, particularly given subdued exports in tariff-exposed sectors such as textiles and gems and jewellery.

Spending Priorities and Capital Expenditure

Goldman Sachs expects capital expenditure growth to slow below nominal GDP growth, signalling that public capex has likely peaked as a share of GDP. The brokerage estimates capex at around 2.9% of GDP in FY27, with defence emerging as a clear priority within capital spending.

Key Spending Priorities:

• Defence spending: Expected to increase given national security priorities
• Railways spending: Likely to remain strong
• Roads and highways: Expected to moderate as a share of GDP
• Transfers to states: Likely to decline as a share of GDP

On current expenditure, Goldman Sachs noted limited scope for further cuts, with subsidies already budgeted at about 1.2% of GDP in FY26, representing a 10-year low.

Debt Reduction and Growth Dependency

India is likely to remain on track towards its medium-term goal of reducing central government debt to 50% of GDP by FY31, but this outcome hinges heavily on growth performance. Goldman Sachs estimates that a fiscal deficit of about 4.0% of GDP combined with nominal GDP growth of roughly 10.5% annually would move debt closer to the target.

The challenge will intensify in coming years as the government faces higher committed expenditure, including potential salary and pension increases following the formation of the 8th Pay Commission.

Government Bond Market Dynamics

Despite expectations of stronger domestic demand for government securities from banks, insurers and pension funds, Goldman Sachs expects the Reserve Bank of India to remain a net buyer in FY27. This is necessary to manage elevated borrowing and redemption pressures, with gross redemptions of about ₹5.50 trillion in central government bonds and ₹4.20 trillion in state bonds due in FY27.

The elevated redemption schedule will keep rollover risks and yield pressures high, with yields likely to remain under pressure given the substantial government bond redemption requirements. Goldman Sachs' analysis reflects the narrow path facing policymakers as they balance fiscal discipline, security-driven priorities, and heavy borrowing requirements amid global uncertainties.