Union Budget 2026 Set for February 1 Presentation by Finance Minister Sitharaman
Finance Minister Nirmala Sitharaman is scheduled to present the Union Budget 2026 on Sunday, February 1, marking her ninth consecutive budget presentation. This will also be the 88th budget in India's post-Independence history, coming at a critical juncture for the nation's economy.
Global Uncertainty Shadows Budget Preparations
Investors and analysts are closely monitoring the upcoming budget for clear signals on how India plans to sustain economic growth while reviving capital expenditure momentum. The government faces the challenging task of maintaining fiscal discipline amid heightened geopolitical tensions and macroeconomic uncertainty.
The global economic landscape has deteriorated significantly since the last Union Budget, with rising protectionism creating new challenges. US President Donald Trump's announcement of tariffs on several nations, including a substantial 50% higher tariff on India, has disrupted a world order that remained relatively stable for decades.
Analysts Expect Domestic Focus Amid External Challenges
Against this complex backdrop, financial experts anticipate the upcoming budget will prioritize boosting domestic manufacturing and strengthening supply chains. The government must carefully balance growth priorities with continued fiscal consolidation efforts.
Domestic brokerage firm JM Financial highlighted that the previous budget shifted focus toward consumption over capital expenditure. This strategy involved providing tax exemptions to individual taxpayers and rationalizing GST rates to stimulate domestic demand.
Consumption Patterns Show Mixed Results
The results of this consumption-focused approach have been uneven across different regions. While rural areas showed visible improvement in consumption patterns, urban consumption largely stagnated during the same period.
JM Financial further noted that weak urban consumption is preventing manufacturers from establishing new production capacities. According to Reserve Bank of India data, capacity utilization among manufacturing firms has remained below the 75% threshold, significantly lower than the 80-83% utilization levels observed during previous capital expenditure cycles.
Balancing Capex and Consumption Priorities
For the upcoming budget, analysts expect Finance Minister Sitharaman to strike a more balanced approach between consumption support and capital expenditure allocation. Unlike revenue expenditure that primarily boosts short-term consumption, capital expenditure offers a higher multiplier effect ranging from 1.5 to 3 times.
This means every rupee spent on capex can potentially increase GDP by up to three rupees while creating durable economic impact. The brokerage anticipates budget announcements for fiscal year 2027 will gradually evolve toward a more balanced growth framework supporting both capex and consumption while maintaining fiscal prudence.
Capex Allocation Targets and Fiscal Discipline
Following a decade of sustained emphasis on fiscal consolidation alongside strong public capital expenditure initiatives, analysts project capex allocation to reach approximately 3% of GDP in the upcoming budget. This represents a strategic shift toward supporting both investment and consumption simultaneously.
Given uneven global growth patterns and external trade uncertainties, JM Financial expects the budget announcements to adopt a more inward-looking perspective. The focus will likely center on domestic demand resilience, supply chain self-reliance, and macroeconomic stability enhancement.
Employment Generation and Female Labor Participation
The brokerage emphasizes that government policies should prioritize improving employment opportunities across both manufacturing and services sectors. Additionally, channeling untapped female labor into productive economic activities should become a top policy priority for sustainable growth.
Despite muted tax revenue collection in fiscal year 2026, analysts anticipate the government will achieve its fiscal deficit target of 4.4% of GDP, demonstrating commitment to fiscal responsibility.
Private Capex Revival Requires Sustained Support
The government's Production Linked Incentive scheme across 14 sectors has attracted over ₹2 trillion in investments, generating incremental sales of ₹12.5 trillion and creating more than 950,000 jobs. However, meaningful progress remains concentrated primarily in mobile manufacturing, while other sectors have yet to achieve similar scale.
For India to successfully transition into a global manufacturing hub, the PLI framework requires institutionalization over a longer timeframe. Periodic recalibration will be necessary to address sector-specific constraints and evolving global competitiveness challenges.
Cluster-Based Manufacturing Approach Recommended
JM Financial advocates for a cluster-based approach to manufacturing policy, which would foster integrated industrial ecosystems and domestic value chains. This strategy enables productivity gains through shared infrastructure, labor pooling, technology spillovers, and efficient resource allocation over extended periods.
The upcoming Union Budget 2026 represents a critical opportunity to set India's economic trajectory amid global uncertainties while balancing immediate consumption needs with long-term investment priorities.
