Finance Minister Nirmala Sitharaman will present the Union Budget for 2026 on Sunday, February 1. This budget marks her ninth presentation and the 88th budget in India's post-independence history. The announcement comes at a crucial time for the nation's economy.
Navigating Global Challenges
India faces multiple external pressures as it prepares this budget. Rising global uncertainties, elevated commodity prices, geopolitical risks, and ongoing trade tensions create a complex backdrop. Analysts believe the FY27 budget must balance fiscal responsibility with growth support.
Domestic brokerage firm Motilal Oswal expects this budget to represent a pivotal moment in India's fiscal framework. They project the gross fiscal deficit will target 4.3% of GDP, down from 4.4% in FY26. This continues India's gradual fiscal consolidation journey.
Strategic Priorities and Expectations
Last year's budget prioritized boosting consumption to revive demand, particularly in urban areas where economic activity showed signs of pickup. This year, given the emphasis on fiscal discipline, analysts do not anticipate populist measures or large tax giveaways.
The budget will likely frame its assumptions around a nominal GDP growth rate of about 10.1%. This provides some flexibility to balance fiscal discipline with necessary growth support. The government appears focused on maintaining credibility while addressing economic needs.
Sunrise Sectors Set for Higher Capex
Despite fiscal constraints, the brokerage sees scope for increased capital expenditure in non-traditional or sunrise sectors. These sectors represent areas of strategic importance for India's future growth and self-reliance.
Key sectors expected to receive attention include:
- Defence and allied industries
- Infrastructure-linked manufacturing
- Pharmaceuticals and healthcare
- Power and nuclear energy
- Electronics and critical minerals
- Labour-intensive sectors affected by trade tariffs
The roadmap for these allocations was already presented during Parliament's winter session. Defence and allied industries will likely receive heightened focus, building on recent momentum in start-ups and the Centre's formation of a dedicated committee to nurture defence capabilities.
Digital and Pharmaceutical Focus
Digital technologies should remain key pillars of reform-oriented allocation. Solutions that integrate advanced technology into agriculture, healthcare, and related social sectors will receive particular attention.
The pharmaceuticals sector leverages India's deep research and development talent pool. Analysts expect this sector to be highlighted as a strategic growth engine. Broader science-led competitiveness, notably in global capability centers for science, emerges as a thematic priority.
Traditional focus areas like defence, nuclear, electronics, and power should retain strong budgetary support. These sectors form part of the government's structural reform agenda and long-term development vision.
Capex Push to Continue Supporting Growth
According to brokerage estimates, total expenditure should grow 7% year-over-year in FY27 to ₹52.9 trillion, representing 13.4% of GDP. Revenue expenditure is projected at ₹40.5 trillion, or 10.3% of GDP.
The subsidy bill is estimated at ₹4.1 trillion, accounting for 1.1% of GDP. Higher allocations are expected for food at ₹2.1 trillion and fertilizers at ₹1.9 trillion.
"We model capex of the Centre to be at ₹12.4 trillion in FY27," said Motilal Oswal. This represents a 10.3% year-over-year increase or 3.1% of GDP. Defence expenditure should lead this growth with a 15% increase over the estimated ₹1.8 trillion spending in FY26.
FY26 included a one-time emergency procurement of ₹40,000 crore. Recently, India's Defence Acquisition Council approved capital acquisition proposals worth ₹79,000 crore in its winter session. This takes FY26 year-to-date approvals to ₹3.3 trillion, nearly double the budgeted capital outlay on defence.
The budget presentation on February 1 will reveal how the government balances these competing priorities. Fiscal discipline remains paramount, but strategic investments in key sectors will drive India's growth trajectory forward.
