Goldman Sachs remains optimistic about India's economic trajectory, citing the FY27 Union Budget's emphasis on fiscal consolidation and continued capital expenditure. According to a recent report by the firm, India's medium-term macroeconomic outlook remains constructive, supported by the budget's signals.

The report highlights the government's commitment to reducing central government public debt, a move Goldman Sachs considers crucial for long-term macro stability. The government aims to lower public debt to approximately 50% of GDP (with a ±1% buffer) by FY31, a significant step from the FY27 target of 55.6%. The FY27 budget further supports fiscal consolidation by targeting a 4.3% fiscal deficit, a 10-basis-point reduction. Goldman Sachs anticipates that the net impact of this fiscal drag on growth will be less severe than in FY26, enabling continued economic expansion without excessive strain on public finances.

Public capital expenditure remains a priority, with the target maintained at 3.1% of GDP. Allocations are strategically directed towards infrastructure-linked sectors such as defense, railways, and roads. Goldman Sachs views this as a positive sign for sustained investment-led growth. While execution has sometimes fallen short of budgeted capital expenditure in recent years, the budget signals a clear intent to sustain infrastructure investment. Specifically, capital expenditure for defense is projected to grow by about 17% year-on-year, and transfers to states for capital spending are expected to increase by roughly 33% year-on-year.

Despite the ongoing fiscal consolidation, net market borrowing remains elevated. However, Goldman Sachs anticipates policy support from the Reserve Bank of India (RBI), which is likely to remain a net buyer in FY27 to partially offset the rupee liquidity drain resulting from foreign exchange sales.

Goldman Sachs has also underlined a broader policy shift where Indian policymakers are prioritizing macroeconomic resilience over chasing near-term growth spurts. The emphasis remains on strengthening public-sector balance sheets to facilitate durable, high, and less volatile growth.

Despite a recent downturn in the Indian stock market, triggered by factors such as increased securities transaction tax (STT) and concerns about government borrowing plans, Goldman Sachs maintains a constructive view on Indian equities. The firm believes that the softer fiscal drag in the budget, combined with steady capital expenditure, supports a fundamentally positive outlook, driven by an anticipated earnings growth recovery to the mid-teens.

Goldman Sachs expects India to be a key driver of global growth among emerging markets. They project India's real GDP growth to reach 6.7% in 2026 and 6.8% in 2027, figures significantly higher than the global average. Factors contributing to this strong growth include robust domestic demand and continued improvements in public infrastructure.

While acknowledging near-term risks to valuations, exacerbated by weak foreign investor sentiment and the unexpected STT hikes, Goldman Sachs remains optimistic about India's long-term growth prospects. They highlight opportunities in strategically important areas and new infrastructure, including digital infrastructure, data centers, biotechnology, transportation corridors, nuclear power, and critical minerals. The firm believes that Indian policymakers are focused on long-term macro and market resilience, even if it means sacrificing some near-term equity upside.

Overall, Goldman Sachs' analysis suggests that the FY27 Union Budget reinforces India's commitment to fiscal responsibility and sustainable growth, paving the way for a positive economic outlook in the medium term.