The Union Budget for 2026–27, to be presented by Finance Minister Nirmala Sitharaman on 1 February, is expected to focus on sustaining economic growth through higher public investment while maintaining a tight grip on fiscal discipline amid global economic uncertainty.
This will be Sitharaman’s ninth consecutive budget, coming at a time when India remains the fastest-growing major economy, with GDP growth for FY26 estimated at around 7–7.3%. Strong domestic demand and government-led capital expenditure have been key growth drivers, even as inflationary pressures and global trade disruptions continue to pose risks.
Capital Expenditure Likely to Remain Priority
Government capital expenditure is expected to continue as the centrepiece of the budget. In FY26, capex is estimated at ₹11.5 lakh crore, and economists expect an increase of 12–15% in FY27, potentially taking it close to ₹13 lakh crore.
Spending is likely to focus on transport infrastructure, logistics, urban development, and energy projects. Officials view sustained capex as critical for job creation, improving productivity, and crowding in private investment.
Fiscal Deficit Targets in Focus
Despite higher spending needs, the government is expected to adhere to its fiscal consolidation roadmap. The fiscal deficit target for FY26 stands at about 4.4% of GDP, with projections suggesting a further reduction to around 4.3% in FY27.
More than 60% of the FY26 deficit target was utilised by November, underscoring the limited room for large revenue-side concessions. Maintaining fiscal discipline remains central to preserving investor confidence and macroeconomic stability.
Income Tax: Limited Relief Expected
Middle-class taxpayers are closely watching the budget for possible income tax relief. However, significant changes to tax slabs are considered unlikely. Instead, the government may focus on simplifying the new tax regime, improving compliance, and offering targeted relief measures such as rationalisation of deductions or benefits for senior citizens. Any major tax giveaways could complicate fiscal consolidation efforts, analysts note.
Agriculture and Rural Spending
Agriculture is expected to see targeted support aimed at improving productivity rather than expanding subsidies. Budget proposals may include higher allocations for irrigation, storage infrastructure, cold chains, and rural connectivity.
Support for allied sectors such as dairy, fisheries, and food processing is also likely, as the government seeks to diversify rural income sources and reduce post-harvest losses.
Jobs, Skills and Emerging Workforce
Employment generation remains a key policy objective. The budget is expected to strengthen funding for skill development, vocational training, and digital education, particularly in areas aligned with future demand such as artificial intelligence, advanced manufacturing, and green technologies.
With the gig economy expanding rapidly, there are also expectations of steps toward improved social security coverage for platform-based workers.
Strategic and Emerging Sectors
The government is expected to continue policy and financial support for strategic sectors including defence manufacturing, semiconductors, electronics, and renewable energy. These areas are seen as critical for reducing import dependence and strengthening India’s position in global supply chains. Green finance and sustainability-linked initiatives may also feature, aligned with India’s climate commitments.
Outlook – The Road Ahead
The Union Budget 2026 is expected to strike a balance between growth support and fiscal restraint. While major structural announcements may be limited, the budget is likely to emphasise continuity in policy, targeted spending, and long-term economic stability.
All eyes will be on Parliament on 1 February as the government lays out its economic priorities for the coming financial year.
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