Robust consumer spending and public investments will maintain India’s real GDP growth at 6.7 per cent in fiscal 2027 and 7 per cent in fiscal 2028, S&P Global Ratings said on Monday, adding that the Union Budget reinforces its expectation of gradual fiscal consolidation.
The global ratings anticipates that these growth rates continue to place India above sovereign peers at similar income levels and should continue to support fiscal revenue increase.
The central government is set to meet its fiscal deficit estimate for fiscal 2026 (year ending March 31, 2026) of 4.4 per cent of GDP. It also budgeted for a 4.3 per cent deficit for fiscal 2027.
“These targets are broadly consistent with our projections. We believe India (BBB/Stable/A-2) will hit its fiscal 2027 deficit target despite the government budgeting for lower Goods and Services Tax (GST) receipts, following the streamlining of GST rates in September 2025,” said the report.
“There is upside to GST revenues coming from stronger consumption and higher collection efficiency, in our view. In addition, support for meeting the deficit target will stem from continued large dividends from the central bank and potential capital underspending,” it added.
The lowered GST rates will support middle-class consumption and complement income tax cuts. These changes are likely to make consumption a greater driver of growth compared with investment, both in this fiscal year and the next.
The spike in the effective U.S. tariff is weighing on the expansion of export-oriented manufacturing in India. In response, the fiscal 2027 budget has announced policies to support a manufacturing push and exports.
“If India can secure a trade agreement with the US, it should reduce uncertainty and enhance confidence, which would boost labour-intensive sectors,” the report mentioned.
The government remains focused on investment-led growth. The budget allocation for capital expenditure is 3.1 per cent of GDP, the same in terms of GDP size from a year earlier.
But factoring in related capital spending, like grants to state governments and public enterprises, the total capital outlay will increase to 5.6 per cent of GDP in fiscal 2027, from 5.1 per cent the year before.
“We believe bottlenecks in executing infrastructure projects should ease as supply chain pressures lessen,” it added.
