Finance Minister Nirmala Sitharaman's Historic Ninth Budget Presentation
Finance Minister Nirmala Sitharaman is set to present her record ninth consecutive Union Budget on February 1, 2026, creating a historic milestone in Indian fiscal policy. This significant event unfolds against a backdrop of heightened geopolitical tensions and a VUCA world characterized by volatility, uncertainty, complexity, and ambiguity. Despite these challenging global conditions, the Indian economy has demonstrated remarkable resilience and strength.
Robust Economic Performance Amid Global Challenges
The Indian economy has performed exceptionally well despite facing Trump tariffs and other international trade pressures. Current projections indicate that India is poised to achieve an impressive GDP growth rate of 7.4% for the fiscal year 2026. When examining the broader economic trajectory from FY22 to FY26, the average annual GDP growth reaches an outstanding 8.1%, though this figure is partially assisted by the low base effect from the COVID-19 impacted year of FY20-21.
Critical economic indicators including inflation rates, fiscal deficit, and current account deficit remain firmly under control. This combination of strong growth alongside maintained financial stability significantly enhances the quality of India's economic expansion. The recent mega India-EU trade deal has provided substantial economic support, even as the US-India trade agreement continues to remain unresolved.
Corporate Earnings Slowdown and Market Challenges
While macroeconomic indicators paint a robust picture, microeconomic realities present a more complex scenario. Corporate earnings, which demonstrated an impressive 24% compound annual growth rate from FY21 to FY24, experienced a significant slowdown, dipping to just 5% in FY25. This decline has pushed market valuations to elevated levels, creating concerns among investors.
The year 2025 proved particularly challenging for Indian markets, which became significant underperformers globally. This underperformance resulted from two primary factors: the dominance of artificial intelligence trades in global stock markets and massive foreign institutional investor selling totaling $18 billion. These developments have created substantial clamor among investors for tax relief measures to attract foreign institutional investors back to Indian markets.
Reform Momentum and Revenue Constraints
The year 2025 emerged as a period of bold economic reforms. Budget 2025 implemented several significant changes including raising the income tax exemption limit to ₹12 lakhs, cutting and rationalizing GST rates in September 2025, and implementing four consolidated labour codes in November that replaced 29 existing labour laws. Simultaneously, the Reserve Bank of India provided substantial growth support through four interest rate cuts totaling 1.25% during 2025.
These combined fiscal and monetary stimuli successfully pushed economic growth toward the estimated 7.4% for FY26. However, low inflation rates have dragged nominal growth down to an estimated 8.2% for FY26, significantly below the Budget estimates of 10.1%. This lower nominal GDP growth has impacted revenue buoyancy, creating an anticipated revenue shortfall of approximately ₹3 lakh crore for FY26.
Limited Scope for Tax Relief Measures
Given these revenue constraints, expectations for significant tax relief measures appear unrealistic. The income tax relief provided last year through raising the exemption limit to ₹12 lakhs exceeded expectations substantially. Considering India's per capita income of approximately ₹2,40,000, this exemption limit means individuals earning five times the per capita income remain exempt from taxation, representing what many consider fair taxation.
Corporate tax structures also appear fair and unlikely to see substantial changes. The long-term capital gains tax, reintroduced in 2018, was rationalized in the 2025 Budget by fixing the rate at 12.5%, creating uniformity across asset classes including equity, equity-oriented mutual funds, gold, and real estate. While exempting foreign institutional investors from long-term capital gains tax could provide market benefits, this appears unlikely as it would require abolishing the tax entirely. However, potential exists for raising the tax-exemption limit for long-term capital gains from the current ₹1.25 lakhs to a higher level.
Fiscal Consolidation and Expenditure Priorities
Fiscal consolidation represents a major success story for the NDA government, with the fiscal deficit reduced from 9.2% in FY21 to 4.5% in FY25. The target for FY27 is likely to be set at 4.3%, with the government planning to shift from fiscal deficit to GDP ratio to debt to GDP ratio as the primary fiscal discipline matrix. The Finance Minister is expected to target 55.5% debt to GDP with a commitment to reduce this to 50% by 2030.
Expenditure priorities will receive careful scrutiny in this Budget. Given the context of 'Operation Sindoor' and ongoing global geopolitical tensions, defence outlays are likely to increase by more than 20%, potentially putting defence stocks back in market limelight. With private capital expenditure remaining subdued, the Finance Minister will likely continue increasing public capital expenditure despite revenue constraints, providing positive momentum for infrastructure stocks.
Balancing Growth and Fiscal Discipline
The primary focus of Budget 2026 will center on sustaining economic growth rather than providing tax relief. In the volatile global geopolitical context, with continuing 50% US tariffs on India and the elusive US-India trade agreement, the Finance Minister faces the challenging task of performing a delicate balancing act. She must sustain high economic growth by increasing expenditure where necessary while simultaneously maintaining fiscal discipline.
Through her previous eight Budget presentations, Finance Minister Nirmala Sitharaman has demonstrated both economic acumen and political savvy in delivering such balancing acts. As India approaches this historic ninth Budget presentation, all eyes will be on how she navigates these complex economic challenges while maintaining India's growth trajectory in an increasingly uncertain global environment.
