FY27 Budget: India Shifts to Debt-Anchored Fiscal Policy, New Era for Fixed Income

• India's FY27 Union Budget will mark a structural shift from fiscal deficit targets to a debt-anchored framework, focusing on the central government's debt ratio.
• The debt ratio is projected at 55.10% of GDP for FY27, with a glidepath to 50% by FY31, making the primary deficit the key market monitorable.
• Despite revenue shortfalls in FY26, the government is expected to meet its 4.4% fiscal deficit target, aided by RBI dividends and spending control.
• The FY27 Budget is likely to target a 4.3% fiscal deficit, with gross market borrowing potentially rising to Rs 16.5 lakh crore due to maturities and capex.
• The RBI's role in managing bond maturities and liquidity, along with the scale of State Development Loan issuance, will be crucial for fixed income markets.

Why It Matters: The FY27 Budget signals a major fiscal policy shift to a debt-anchored framework, impacting fixed income markets.