MUMBAI: Despite pegging a lower than expected fiscal deficit target of 4.3% of GDP for the next financial year, the Union Budget 2027 has proposed higher than anticipated market borrowing to fund government expenditure, triggering a sharp sell-off in the markets amid concerns that heavy government borrowing could crowd out private investment and raise the cost of capital.
Finance Minister Nirmala Sitharaman, while presenting the Budget, proposed gross market borrowings of Rs 17.2 trillion for FY27.
In FY26, the government’s gross market borrowings stood at Rs 14.8 trillion, while net borrowings were Rs 12.5 trillion.
“To finance the fiscal deficit, the net market borrowings from dated securities are estimated at Rs 11.7 trillion. The balance financing is expected to come from small savings and other sources. The gross market borrowings are estimated at Rs 17.2 lakh crore,” Sitharaman said.
This implies that the government will borrow Rs 2.5 trillion more than in the last financial year.
The sharp increase proposed for FY27 underscores the scale of the government’s financing requirements amid sustained public spending and ongoing global market volatility.
The government has also proposed to buy back debt worth Rs 5.5 trillion during the course of the next financial year.
Market participants had been expecting net borrowings of under Rs 11 trillion, and the higher figure led to a market sell-off, as investors feared that increased government borrowing would choke fund flows into the private sector by reducing the availability of capital for non-government borrowers.
The Budget has proposed total non-debt receipts of Rs 36.5 trillion and total expenditure of Rs 53.5 trillion, while the Centre’s net tax receipts are estimated at Rs 28.7 trillion.
In comparison, the Budget 2026 had proposed total non-debt receipts of Rs 34.96 trillion and total expenditure of Rs 50.65 trillion, an increase of 7.4% over FY25. Net tax receipts were pegged at Rs 28.37 trillion and non-tax revenues at Rs 5.83 trillion.
Of the total expenditure of Rs 50.65 trillion planned for FY26, capital expenditure was estimated at Rs 11.21 trillion, accounting for 3.1% of GDP.