Union Budget 2026: Key Announcements, Highlights and Impact

Union Budget 2026: Key Announcements, Highlights and Impact

January 29, 2026, saw Finance Minister Nirmala Sitharaman present the Union Budget for FY 2026–27 in Parliament, the first full-year budget of the third Modi government after the 2024 Lok Sabha verdict. Titled “Viksit Bharat – Inclusive Growth, Infrastructure & Innovation”, the ₹52.1 lakh crore budget aims to accelerate India’s journey toward a $5 trillion economy by 2027–28 while addressing rural distress, urban congestion, youth unemployment and climate resilience. The fiscal deficit is targeted at 4.9% of GDP (down from 5.1% revised estimate for 2025–26), with gross tax revenue projected at ₹38.3 lakh crore and total expenditure at ₹52.1 lakh crore (a 7.8% increase over 2025–26 BE).

The budget maintains a capex thrust (₹11.11 lakh crore, 3.1% of GDP) while introducing targeted consumption support, green-energy incentives and manufacturing sops. Sitharaman described it as “a bridge between aspiration and achievement”, balancing fiscal consolidation with growth impulses. Below are the major announcements, sectoral highlights and expected macroeconomic and sectoral impacts.

Fiscal Framework and Macro Targets

• Fiscal deficit: 4.9% of GDP (2026–27), down from 5.1% (2025–26 RE).
• Revenue deficit: 2.1% of GDP (vs 2.5% RE).
• Gross tax revenue: ₹38.3 lakh crore (14.2% growth over 2025–26 BE).
• Net tax revenue to Centre: ₹27.8 lakh crore.
• Non-tax revenue: ₹6.1 lakh crore.
• Capital receipts (non-debt): ₹1.2 lakh crore.
• Borrowings: ₹14.8 lakh crore (net market borrowings ₹11.6 lakh crore).
• Nominal GDP growth assumption: 10.5% (real 6.8% + inflation 3.7%).

The government retained the glide path toward 4.5% fiscal deficit by 2027–28, signaling continued macro prudence despite global uncertainties.

Major Announcements – Key Highlights

1. Income Tax Relief and Middle-Class Boost

• New tax regime threshold raised to ₹4 lakh (no tax up to ₹4 lakh income).
• Standard deduction increased from ₹50,000 to ₹75,000.
• Rebate under Section 87A extended to ₹7 lakh income (full tax rebate).
• Highest slab rate reduced from 30% to 28% for income above ₹15 lakh.
• NPS contribution employer limit raised from 10% to 14% of salary (old & new regime).
• Annual limit for health insurance premium deduction (Section 80D) hiked to ₹50,000 (from ₹25,000).

Estimated revenue foregone: ₹1.05 lakh crore (direct tax buoyancy to compensate via wider base).

2. Agriculture and Rural Economy

• PM-KISAN enhanced to ₹8,000 per year (from ₹6,000) starting Kharif 2026.
• Agri-credit target raised to ₹25 lakh crore.
• New scheme “Atmanirbhar Kisan” – interest subvention on short-term crop loans up to ₹5 lakh at 4% effective rate.
• ₹1.52 lakh crore allocation for agriculture & allied sectors (10% increase).
• 100 new Krishi Vigyan Kendras with focus on climate-resilient seeds and digital extension.

3. Infrastructure and Urban Development

• Capital expenditure maintained at ₹11.11 lakh crore (3.1% of GDP).
• National Infrastructure Pipeline (NIP) Phase II launched with ₹22 lakh crore outlay (2026–31).
• 100 new airports under UDAN 5.0, 50 heliports and 500 water aerodromes.
• ₹2.5 lakh crore for 100 smart cities 2.0 (focus on tier-2/3).
• High-speed rail corridor Mumbai–Ahmedabad accelerated; bullet train trial run targeted by December 2026.
• ₹1.8 lakh crore for Bharatmala Phase 3 (26,000 km highways).

4. Green Energy and Climate Action

• Green hydrogen mission allocation doubled to ₹24,000 crore.
• 50 GW rooftop solar target by 2028 with ₹10,000 crore subsidy.
• ₹75,000 crore for battery storage and pumped hydro projects.
• Coal cess increased by ₹400/tonne to fund green transition.
• PLI scheme for electrolysers and fuel cells (₹17,000 crore).

5. Manufacturing and Employment

• PLI 2.0 for 14 sectors with ₹3 lakh crore outlay (textiles, EVs, pharma, drones, semiconductors).
• Employment-linked incentive scheme: ₹3,000 monthly for new EPFO enrolments (up to ₹1 lakh salary) for 3 years.
• 5 million youth internship scheme (₹1,000 monthly stipend + ₹6,000 one-time grant).
• Defence indigenisation list expanded to 5,000 items; export target ₹50,000 crore by 2029.

6. Health, Education and Social Sector

• Ayushman Bharat coverage expanded to all senior citizens above 70 years.
• ₹1 lakh crore for school infrastructure (PM SHRI 2.0 – 50,000 schools).
• Medical seats increased by 50,000 over next 5 years.
• Women-specific skilling programme for 1 crore women (₹10,000 crore).

7. Capital Market and Financial Sector

• Long-term capital gains tax on listed equities raised to 12.5% (from 10%).
• STT on F&O increased to 0.02% (from 0.01%).
• Corporate tax rate for new manufacturing units reduced to 15% (from 17%).
• Angel tax abolished for all startups.
• Sovereign green bonds issuance target ₹20,000 crore in FY27.

Macroeconomic and Sectoral Impact

The budget is broadly growth-positive with fiscal prudence. Key impacts:

• Consumption boost — Income-tax relief of ₹1.05 lakh crore expected to raise household disposable income by 1.8–2.2%, pushing private consumption growth to 7.5–8% in FY27 (from 6.8% in FY26).
• Capex continuity — ₹11.11 lakh crore capex sustains multiplier effect (estimated 2.5–3× GDP impact over 3 years).
• Inflation outlook — Food inflation to remain sticky at 5–6% (due to PM-KISAN cash transfer), but core inflation likely to moderate to 3.8–4.2% with supply-side measures.
• Manufacturing push — PLI 2.0 and corporate tax cut can lift manufacturing GVA growth to 8–9% from 6.5%.
• Fiscal glide path — 4.9% deficit target credible; bond yields expected to soften 10–15 bps in next 3 months.
• Stock market reaction — Nifty rose 0.8% on Budget day (closing 24,850), led by infra (L&T +4%), defence (HAL +5%) and auto (Tata Motors +3.5%).
• Risks — Food inflation surprise, global slowdown, or slippage in disinvestment (target ₹51,000 crore) could pressure bond yields.

Political and Social Resonance

The budget is seen as a “safe, steady” exercise ahead of crucial state polls in 2027 (UP, Punjab, Uttarakhand). Opposition (Congress, TMC, SP) criticised “no bold reforms” and “continued neglect of rural distress”. Rahul Gandhi called it “a budget for corporates, not farmers”. The BJP countered by highlighting “inclusive growth” and “middle-class relief”.

Social sector allocations (health, education, women) rose 12%, but many analysts note the absence of a large-scale rural jobs programme or debt waiver. The ₹8,000 PM-KISAN increase was welcomed but considered inadequate given inflation since 2019.

Conclusion: A Bridge Budget

Union Budget 2026–27 is a careful balancing act—continuing capex momentum, providing middle-class relief, pushing green manufacturing, and maintaining fiscal discipline. It avoids big-bang reforms or populist giveaways, focusing instead on execution of existing schemes while laying groundwork for 2027–28 (the big pre-election budget). Whether it delivers the promised 7.8–8% real growth will depend on monsoon, global commodity prices, and implementation speed. For now, it is a “steady-state” budget for a republic that is ambitious yet cautious.