India's 2026/27 budget points to a slower and more gradual pace of fiscal consolidation, rating agencies said, ‍with Fitch calling it ‍broadly neutral for growth in the world's fifth-largest economy.

In the annual budget, the ​government will target a debt-to-GDP ratio of 55.6% and a fiscal deficit of 4.3% of GDP, Finance Minister Nirmala ⁠Sitharaman said on Sunday, unveiling measures to beef up manufacturing in a volatile global environment.

"The slowing pace of ⁠consolidation seen ‌in India's budget for fiscal year 2027 is in line with our view that further progress on deficit reduction is becoming more difficult without compromising more on GDP growth," ⁠Fitch said in a statement.

S&P Global Ratings said the budget reinforced its expectation of gradual fiscal consolidation.

It believes India will meet its fiscal 2027 deficit target despite budgeting for lower tax collections, supported by continued large dividends from the central bank and potential capital underspending.

The general government ⁠fiscal deficit, which includes state deficits, ​could gradually narrow to 6.6% of GDP from 7.3% in fiscal 2026, S&P Global added.

Fitch and Moody's Ratings both acknowledged ‍India's growing track record of fiscal consolidation but said the budget gap yawned wider than in the years prior to the ​COVID-19 pandemic.

The quality of government finances has improved, however, Fitch said.

"Although the overall fiscal deficit is still higher than pre-pandemic levels, this reflects stronger capital expenditure spending, as the revenue deficit is narrower than pre-pandemic levels, even including previously off-budget spending."

Fitch has a BBB- sovereign rating for India, while Moody's rates it Baa3. S&P upgraded India to BBB in 2025 for its first such upgrade in 18 years.

S&P warned that a spike in effective U.S. tariffs was weighing on the expansion of export-oriented manufacturing in India, while adding a U.S. trade deal could reduce uncertainty and boost confidence, particularly in labour-intensive sectors.

The ⁠Indian government sees the economy growing in a range ‌of 6.8% to 7.2% in the financial year that begins on April 1.

Fitch sees the budget as neutral for growth, while S&P anticipates consumer spending and public investments will help keep India's real GDP ‌growth at ⁠6.7% in fiscal 2027 and 7% in fiscal 2028.