Union Budget 2026–27: A Careful Budget Focused on Long-Term Growth

When Finance Minister Nirmala Sitharaman presented the Union Budget 2026–27 on 1 February, expectations were already low. With the global economy slowing, trade conditions remaining uncertain, and inflation still a concern in India, few expected a bold or dramatic budget. Interestingly, the budget was presented for the first time on a Sunday and outlined an expenditure plan of approximately ₹53.5 lakh crore.

Instead of big announcements or major tax cuts, the government focused on staying on track. Budget 2026 is more about building for the future than offering short-term relief. It signals that economic policy will remain steady, even if that means avoiding popular or immediate measures.

Economic Background: Growth With Caution

India is entering FY27 in a relatively strong position. Economic growth is expected to stay above 7 percent, keeping India among the fastest-growing major economies in the world. However, this growth comes with several risks. Global trade is slowing down, commodity prices remain unstable, and interest rates are still high in many developed economies.

Keeping these factors in mind, the government has chosen to be careful with its finances. The fiscal deficit target has been set at around 4.3 percent of GDP, reflecting a clear effort to reduce borrowing, especially after the pandemic years. At the same time, the government has not reduced spending significantly. Total expenditure is estimated at around ₹53.5–₹54 lakh crore, showing that the state continues to play a major role in supporting growth. The overall approach of the budget reflects a balance between spending and fiscal discipline.

The Budget’s Guiding Framework: The Three Kartavya

Finance Minister Nirmala Sitharaman noted that Union Budget 2026–27 is guided by three key kartavya (duties) that shape the government’s economic approach. The first kartavya focuses on accelerating economic growth through sustained public investment, particularly in infrastructure and manufacturing. The second emphasises social balance and inclusion, ensuring that growth reaches agriculture, MSMEs, and vulnerable sections without creating long-term fiscal stress. The third kartavya relates to institutional strength and fiscal responsibility, highlighting the importance of stable policies, controlled deficits, and long-term reforms rather than short-term populist measures. These three principles together explain the character of the budget. The emphasis on capital expenditure supports growth, targeted support for farmers and small businesses addresses inclusion, and the steady path of fiscal consolidation reflects responsibility. Under this framework, Budget 2026 is less about immediate relief and more about fulfilling long-term economic duties.

Infrastructure Spending: The Main Growth Driver

Infrastructure continues to be the biggest focus of Budget 2026. Capital expenditure has been increased to a record ₹12.2 lakh crore. The government believes that spending on infrastructure leads to higher private investment and job creation. The spending is not limited to roads and railways. The budget includes plans for high-speed rail projects, improved freight movement, national waterways, and urban transport systems. These projects aim to reduce costs for businesses and improve connectivity between production and consumption centres. The government has also acknowledged the financial risks involved in large infrastructure projects. To address this, new mechanisms such as the Infrastructure Risk Guarantee Fund have been proposed to encourage private participation in long-term projects and reduce risk for private investors.

Tax Policy: Stability Over Change

For most taxpayers, the budget brings stability rather than relief. Income tax slabs have not been changed under either the old or the new tax regime. However, the introduction of the New Income Tax Act, 2025, which will replace the 1961 Code starting April 1, 2026  is one of the most significant structural changes. Under the new tax regime, income up to approximately ₹12 lakh remains effectively tax-free due to existing rebates and standard deductions introduced earlier. The government appears to believe that frequent tax changes create uncertainty and prefers a stable system.

Efforts have also been made to improve ease of compliance. Simplified tax forms and the introduction of “Corporate Mitras” in Tier 2 and Tier 3 cities aim to assist MSMEs. The Tax Collected at Source (TCS) on overseas education and medical treatment under the Liberalised Remittance Scheme (LRS) has been reduced from 5 percent to 2 percent. However, the Securities Transaction Tax (STT) on derivatives has been increased, with futures rising to 0.05 percent and options ranging between 0.1 percent and 0.15 percent.

Indirect Tax (Customs Duty) Adjustments:

Category	Change	Impact
Healthcare	Duty exempted for 17 cancer drugs & 7 rare disease meds	Lower treatment costs
Electronics	Duties Slashed on mobile components & microwave parts	Cheaper local assembly
Clean Energy	Exemption on Li-ion battery manufacturing machinery	Boost to EV ecosystem
Luxury Goods	Increased duties on finished luxury imports	Promotion of local brands

Manufacturing and Strategic Sectors

Another important focus of the budget is manufacturing, especially in strategic sectors. As global supply chains continue to shift, India aims to reduce dependence on imports and build domestic manufacturing strength under the Atmanirbhar Bharat vision. The expansion of the India Semiconductor Mission 2.0, with an allocation of ₹40,000 crore, reflects this objective. The focus is not only on setting up chip manufacturing units but also on strengthening the supply chain for chemicals, gases, and specialised machinery, ensuring India plays a larger role in the semiconductor ecosystem.

The budget also supports the pharmaceutical sector through initiatives such as Biopharma Shakti, which aims to move India towards higher-value drug research and production. Investments in critical minerals and rare earth corridors across states like Odisha, Kerala, Andhra Pradesh, and Tamil Nadu highlight the importance of securing key resources for future industries.

Automotive and EV Sector: Moving Towards Manufacturing Independence

The budget shifts the focus of the electric vehicle (EV) sector from consumer subsidies to manufacturing independence. Customs duty exemptions have been expanded to 35 additional capital goods used in lithium-ion cell manufacturing, encouraging the development of large-scale battery “giga factories.” Since batteries account for nearly 35–40 percent of EV costs, this move is expected to reduce production expenses over time.

The creation of rare earth corridors is also intended to reduce reliance on global supply chains, particularly from China. While EV showroom prices may remain stable in the short term, the development of domestic supply chains for magnets and battery cells is expected to lower costs in the long run.

Technology and IT: Moving Towards a Global Data Hub

This budget is widely seen as one of the most technology-focused budgets in recent years. A major announcement includes a tax holiday until 2047 for foreign cloud service providers using Indian data centres. This initiative aims to position India as a global data and digital infrastructure hub.

The clubbing of IT, IT-enabled services (ITeS), Knowledge Process Outsourcing (KPO), and research and development activities under a single category with a 15.5 percent safe harbour margin is expected to reduce tax litigation and improve clarity for technology companies.

Infrastructure and Real Estate: Growth Beyond Metro Cities

The record capital expenditure is expected to significantly benefit infrastructure and real estate sectors, particularly in Tier 2 and Tier 3 cities. The budget emphasises the development of high-speed rail corridors and introduces the City Economic Region Fund, allocating approximately ₹5,000 crore per region to support urban expansion.

The Infrastructure Risk Guarantee Fund is expected to provide credit guarantees to lenders during the high-risk construction phase, easing liquidity challenges for private developers. However, real estate bodies such as CREDAI have pointed out the absence of direct relief for affordable housing, which may continue to create inventory pressure in the budget housing segment.

Agriculture, MSMEs, and Social Sector Initiatives

Despite the focus on large-scale investments, agriculture continues to receive targeted support. The introduction of Bharat VISTAAR, a multilingual AI-based advisory platform, aims to provide customised guidance to farmers, improving productivity and decision-making.

MSMEs are being supported through targeted credit schemes and risk-sharing arrangements to improve access to finance and integration into formal supply chains.

The budget also includes several social sector initiatives. Plans have been announced to establish at least one girls’ hostel in every district, strengthening educational access. In healthcare, three new All India Institutes of Ayurveda and five regional medical tourism hubs are proposed. Additionally, the government plans to establish AVGC (Animation, Visual Effects, Gaming, and Comics) Content Creator Labs in 15,000 schools to promote the emerging creative economy, often referred to as the “Orange Economy.”

Market Reaction: Sensex and Nifty Decline

If the budget had a moment of immediate tension, it came from changes to the Securities Transaction Tax. The increase in STT on derivatives triggered a negative reaction in stock markets. During the special Sunday trading session, the Nifty witnessed a decline of approximately 1.35 percent, while broader market sentiment also weakened.

By the end of the trading session, the Sensex had fallen by 1,546.84 points, or 1.88 percent, closing at 80,722.94. The Nifty 50 dropped 495.20 points, or 1.96 percent, ending at 24,825.45. The move is widely viewed as a deliberate attempt by the government to reduce excessive retail speculation in the futures and options segment and encourage long-term investments through equities and mutual funds.

A Budget Focused on Structural Growth

Union Budget 2026–27 is not a budget of major surprises. Instead, it reflects a careful and strategic shift in economic planning. While the previous year focused on maintaining stability, this budget focuses on strengthening long-term economic foundations.

The government has chosen infrastructure expansion, technological capability, manufacturing independence, and fiscal discipline over short-term populist subsidies. While market reactions may remain negative in the short run, the broader growth strategy continues to focus on building long-term economic strength. For investors, the message remains clear: short-term volatility may persist, but the long-term growth story remains strong. For citizens, the budget offers continuity and stability rather than sudden policy changes. In uncertain global conditions, Budget 2026–27 places greater emphasis on sustainable and long-term economic growth rather than immediate impact.