Standard Chartered Bank economists Anubhuti Sahay, Saurav Anand, and Nagaraj Kulkarni have analyzed the budgets of 27 Indian states for FY26 (ended March 2026) and FY27 (targeted), projecting that the aggregate fiscal deficit will remain at 2.9% of GDP in FY27, consistent with the trend observed since FY25 [1]. The economists note that slower revenue proceeds and persistently high revenue expenditure are contributing factors, while capital expenditure (capex) is expected to be steady at 1.9% of GDP, or 2.3% when including capex loans from the central government [1].
The report highlights that wider fiscal deficits are likely to increase State Development Loan (SDL) issuance, with net SDL issuance projected to be in the range of INR 9.6-10.0 trillion for FY27. This represents an increase of approximately 4-9% over the previous estimate of INR 9.2 trillion, assuming that 86-90% of the deficit is financed through market borrowing [1]. The economists also caution that there is a risk of the fiscal deficit widening further if crude oil prices remain elevated for an extended period [1].
Despite these factors, Standard Chartered maintains a Neutral stance on Indian Government Bonds (IGBs), indicating neither a positive nor negative outlook at this time [1].
CONCLUSION
Standard Chartered's analysis suggests that Indian states' fiscal deficits will remain stable in FY27, with a potential increase in market borrowing through SDLs. The bank's Neutral outlook on Indian Government Bonds reflects a balanced view amid steady fiscal trends and external risks such as crude oil prices.