Lower revenue as a share of GDP has been more than offset by cuts to subsidies and spending on current schemes, leading to the smallest fiscal consolidation in six years, likely positive for growth, a new report has said. 

The fiscal consolidation for FY27 is the slowest in six years. And the budgeted disinvestment, which is a below-the-line funding item, is likely to see the highest rise in six years, the report from HSBC Global Investment Research said.

“The central government continues with fiscal consolidation, though signing up for a gentler path for FY27; the fiscal impulse will likely turn neutral after several years in the negative, and this should be good news for GDP growth,” the research firm added.

The report said that the services sector was the focus of the Budget, “with ambitious plans and increased outlays for medical institutions, universities, tourism, sports facilities, and the creative economy.”

Urban infrastructure saw a renewed push with each City Economic Region (CER) set to receive get Rs 50 billion over 5 years.

Seven new high-speed rail corridors will connect major cities, the report noted, adding large cities will also get an incentive of Rs 1 billion if they issue municipal bonds worth more than Rs 10 billion.

The report highlighted policy priorities, saying, “new manufacturing sectors were given incentives, namely biopharma, semiconductors, electronic components, rare earth corridors, chemical parks, container manufacturing, and high-tech tool rooms.”

Direct taxes are expected to grow faster than nominal GDP while indirect taxes will expand more slowly, with gross tax revenues budgeted to rise about 8 per cent year‑on‑year, the report said.

Central government set a fiscal deficit target of 4.3 per cent of GDP for FY27 after a 4.4 per cent estimate for FY26, and nominal GDP growth was pegged at 10 per cent.