Historic Sunday; 4 poll-bound states; open stock market: What to expect from Union Budget 2026

New Delhi: Finance Minister Nirmala Sitharaman will present her ninth consecutive  Union Budget on Sunday, February 1, marking a first in independent India’s history. The FY 2026-27 Budget, covering April 2026 to March 2027, aims to sustain growth, maintain fiscal discipline, and introduce reforms to buffer the economy from global trade frictions, including US tariffs.

Sitharaman’s previous income tax and GST cuts, combined with infrastructure spending and the RBI’s interest rate reductions, have helped India withstand punitive US tariffs. But sustaining growth remains a challenge.

While domestic demand has held up and inflation moderated, global uncertainties—geopolitical tensions, volatile commodity prices, and uneven monetary easing by major central banks—continue to cloud the outlook. Domestically, the government faces pressure to boost consumption, create jobs, and accelerate capital spending, while keeping the fiscal deficit on a downward path.

Tax cuts have reduced government revenue, limiting policy options. Economists warn that restoring investor confidence is critical, with uncertainty over US trade talks unsettling financial markets. Foreign investors continue to sell Indian equities, pushing the rupee to record lows.

Revenue measures under consideration

Sitharaman may use petrol and diesel duties to bolster revenues. Analysts note the minister could raise excise duty without passing the increase to consumers, adjusting against retail price cuts from last year.

Simplifying regulations and pushing structural reforms are expected to attract domestic and foreign investment. Despite fiscal constraints, spending cuts are unlikely. New measures may be announced for poll-bound states: West Bengal, Tamil Nadu, Kerala, and Assam, with some schemes potentially re-packaged.

Capex push likely to continue

Capital expenditure will remain central. Government spending on roads, railways, defence manufacturing, urban infrastructure, and logistics has sharply increased in recent years to attract private investment.

Economists expect a further rise in capex for FY27, though more measured than the post-pandemic surge. Priority areas include railways, renewable energy, power transmission, defence, and urban transport, with continued support for state infrastructure via interest-free loans.

Tax stability over big giveaways

Major tax changes are considered unlikely. The government prioritises stability and predictability in direct taxes. Tweaks to personal income tax may be incremental, easing the middle class’s burden to support consumption.

Corporate tax rates are expected to remain unchanged, focusing instead on compliance, digitisation, and data-driven enforcement to broaden the tax base.

Jobs, manufacturing, and MSMEs

Job creation is expected to feature prominently, with incentives for labour-intensive manufacturing, skilling, and apprenticeships.

Schemes for micro, small, and medium enterprises (MSMEs) may see enhanced allocations or credit-guarantee support. Production-linked incentive (PLI) schemes could also be refined to boost manufacturing, exports, and employment.

Green transition and energy security

The FY27 Budget is likely to support renewable energy, green hydrogen, battery storage, and electric mobility. Measures may include domestic manufacturing of clean-energy equipment and reducing import dependence.

Allocations for oil and gas infrastructure and strategic reserves could be maintained to address energy security amid global volatility.

Political undertones

Although not an election year, the Budget will be scrutinised for signals ahead of state polls. Balancing welfare spending with fiscal prudence is expected to be delicate, particularly with calls for higher rural support and targeted subsidies.

Overall, the FY27 Budget is expected to emphasise continuity, reinforcing long-term growth strategies while navigating near-term risks. Economists at SBI Research highlighted global uncertainties and crude oil volatility.

"We expect modest growth in tax revenue and flat growth in non-tax revenue," they said. "Government capex may cross Rs 12 lakh crore in FY27, a YoY growth of around 10 per cent."

Radhik Rao, Senior Economist at DBS Bank, added: "Net tax receipts are on course to miss budgeted estimates due to the GST rate rationalisation measures, direct tax relief, and lower tax buoyancy on the back of weaker nominal growth. We expect Budget measures to align with the economy's strategic ambitions, including on manufacturing and social welfare."

Markets to remain open on Budget Day

India’s stock exchanges will hold live trading on February 1, despite Sunday being a settlement holiday.

The National Stock Exchange confirmed: 

"On account of the presentation of the Union Budget, members are requested to note that Exchange shall be conducting a live trading session on February 1, 2026, as per the standard market timings (9:15 am–3:30 pm)."

Shares purchased on January 30 will not be eligible for sale on February 1, and stocks bought on Budget Day cannot be offloaded the following day.

Fiscal outlook 

Sitharaman’s ninth consecutive Budget will be the second full presentation since the NDA’s third consecutive term began in 2024. Analysts expect modest borrowing growth of around 3% YoY, with a FY27 fiscal deficit projected at 4.1–4.2% of GDP.