Budget ’26’: India’s public borrowing report card

Hello,

This week, Blackstone led a $1 billion financing for Neysa, backing one of India’s most significant AI-infrastructure platforms and sending a strong signal for private capital moving into computers. 

But it was not the only deal that stood out this week:

• At the same time, Adani Group outlined plans to invest $100 billion in AI data centres by 2035, a staggering capex ambition that reframes India’s AI race and possible long term infrastructure demand.
• Meanwhile, RBI’s new capital market exposure norms could revive bank-led acquisition financing, with implications for leveraged buyouts as much as sponsor-backed deals.
• In public markets, Fractal Analytics shares fell on debut after its $313 million IPO. reinforcing the narrative of fragile pricing power in public markets and tougher exit conditions.
• And finally, Yotta Data Services committed $2 billion to deploy Nvidia’s latest chips, underscoring both India’s AI arms-race dynamic and the capital intensity now embedded in the ecosystem.

I hope you enjoy this week’s roundup.  And if you’re looking to take your M&A deals to the next level, connect with me on LinkedIn to discuss how Ideals VDR can help with your next strategy.

Let’s dive in.

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Market Trends

Big Debt

Source: Press Information Bureau, Government of India

Over the past decade, India has built up substantial government debt as a strategy. The question now is whether that debt remains sustainable.

India’s total general debt, including both internal and external obligations, has remained broadly stable around 80-82% of GDP in recent years. The majority is domestically held, rupee-denominated and long-term in nature, which significantly limits FX risks and rollover pressure. 

• Although this level may appear elevated, it remains broadly in line with advanced economies such as Austria (82.4%) and China (94.1%), and even below some smaller economies including Bolivia (90.4%) or Bhutan (105.6%).

External debt remains far smaller in relative terms. India’s external debt has been around 19-20% of GDP (about $765 billion in recent prints), a manageable ratio by emerging-market standards.

Caption: India’s central government‘s gross market borrowings
Source:  Reuters

The 2026-27 Union Budget projects record gross borrowing of ₹17.2 trillion (about $207 billion; @1 USD = ₹83). That borrowing funds both capital expenditure (asset-building) and revenue expenditure (day-to-day spending that does not directly create future productive capacity). 

Borrowing, by itself, is not necessarily the problem. What matters is the trajectory: a record gross number can still be consistent with a stable (or falling) debt ratio if nominal GDP growth remains strong and the fiscal deficit continues to narrow.

Add caption: Fiscal deficit glide path to 4.3%

The government aims to reduce the fiscal deficit to 4.3% of GDP by FY27. In plain terms: for every GDP is ₹100, it plans to borrow ₹4.30 that year. That gradual narrowing economists call ‘fiscal consolidation’ is designed to stabilise the debt ratio.

This sustainability will hinge on three variables: nominal GDP growth, interest costs, and inflation. If nominal growth exceeds the effective interest rate on government debt, the debt burden will gradually ease.

India’s growth outlook remains stronger than most major economies, and inflation has stayed broadly within the RBI’s comfort zone. Still, interest payments already absorb a significant share of government revenue — a constraint markets watch closely.

The big picture of Big Debt in India is that it is not in crisis, but fiscal headroom is no longer unlimited. For dealmakers, the signal lies in yields, liquidity conditions, and whether sovereign borrowing crowds out private capital — or catalyses it through sustained public capex.

India’s inflation remains within the monetary policy committee targets, keeping borrowing costs manageable, as RBI governor Sanjay Malhotra said.

• “We are certainly in the same sweet spot, maybe even better because growth is looking up. Growth is looking even better and inflation is the same.”

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