Budget 2026: Key Announcements, Expectations and Highlights

Budget 2026: Key Announcements, Expectations and Highlights

Finance Minister Nirmala Sitharaman presented the Union Budget 2026–27 in Parliament on 1 February 2026, the first full-year budget of the third Modi government following the 2024 general election. Titled “Viksit Bharat – Inclusive Growth, Infrastructure & Innovation”, the ₹53.2 lakh crore budget continues the capex-led growth strategy while introducing targeted consumption support, green-energy incentives, manufacturing sops and middle-class tax relief. The fiscal deficit is targeted at 4.8 % of GDP (down from 5.1 % revised estimate for 2025–26), with gross tax revenue projected at ₹39.8 lakh crore and total expenditure at ₹53.2 lakh crore (8.2 % increase over 2025–26 BE).

The budget was broadly seen as growth-oriented and fiscally responsible, avoiding large-scale populist giveaways ahead of several state elections in 2027. Below are the major announcements, sectoral highlights, pre- and post-budget expectations, and likely macroeconomic and market impact.

Fiscal Framework and Macro Targets

• Fiscal deficit: 4.8 % of GDP (2026–27), down from 5.1 % (2025–26 RE).
• Revenue deficit: 2.0 % of GDP (vs 2.5 % RE).
• Gross tax revenue: ₹39.8 lakh crore (14.5 % growth over 2025–26 BE).
• Net tax revenue to Centre: ₹28.9 lakh crore.
• Non-tax revenue: ₹6.4 lakh crore.
• Capital receipts (non-debt): ₹1.3 lakh crore.
• Borrowings: ₹15.1 lakh crore (net market borrowings ₹12.0 lakh crore).
• Nominal GDP growth assumption: 10.7 % (real 6.9 % + inflation 3.8 %).

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

Major Announcements – Key Highlights

1. Income Tax Relief for Middle Class

• New tax regime basic exemption limit raised to ₹4 lakh (no tax up to ₹4 lakh).
• 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 employer contribution limit raised from 10 % to 14 % of salary (both regimes).
• Health insurance premium deduction (Section 80D) limit hiked to ₹50,000.

Estimated revenue foregone: ₹1.12 lakh crore (expected to be offset by wider tax base and higher direct-tax buoyancy).

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 “Atmanirbhar Kisan” interest subvention scheme: short-term crop loans up to ₹5 lakh at effective 4 %.
• ₹1.65 lakh crore allocation for agriculture & allied sectors (11 % increase).
• 120 new Krishi Vigyan Kendras focused on climate-resilient seeds and digital extension.

3. Infrastructure and Urban Development

• Capital expenditure maintained at ₹11.4 lakh crore (3.2 % of GDP).
• National Infrastructure Pipeline Phase II launched with ₹23 lakh crore outlay (2026–31).
• 120 new airports under UDAN 5.0, 60 heliports and 600 water aerodromes.
• ₹2.8 lakh crore for 120 smart cities 2.0 (focus on tier-2/3).
• Mumbai–Ahmedabad high-speed rail accelerated; trial run targeted by December 2026.
• ₹2.0 lakh crore for Bharatmala Phase 3 (28,000 km highways).

4. Green Energy and Climate Action

• Green hydrogen mission allocation doubled to ₹26,000 crore.
• 60 GW rooftop solar target by 2028 with ₹12,000 crore subsidy.
• ₹80,000 crore for battery storage and pumped hydro projects.
• Coal cess increased by ₹400/tonne to fund green transition.
• PLI scheme for electrolysers, fuel cells and green ammonia (₹18,000 crore).

5. Manufacturing, Employment and Skilling

• PLI 2.0 for 16 sectors with ₹3.2 lakh crore outlay (textiles, EVs, pharma, drones, semiconductors, green steel).
• Employment-linked incentive: ₹3,000 monthly for new EPFO enrolments (salary up to ₹1 lakh) for 3 years.
• 6 million youth internship scheme (₹1,000 monthly stipend + ₹6,000 one-time grant).
• Defence indigenisation list expanded to 5,500 items; export target ₹55,000 crore by 2029.

6. Health, Education and Social Sector

• Ayushman Bharat coverage extended to all citizens above 65 years.
• ₹1.1 lakh crore for school infrastructure (PM SHRI 2.0 – 55,000 schools).
• Medical seats increased by 55,000 over next 5 years.
• Women-specific skilling programme for 1.2 crore women (₹12,000 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 0.025 % (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 ₹25,000 crore in FY27.

Pre-Budget Expectations vs Actual Announcements

Expectations (mid-January consensus)

• Fiscal deficit 4.9–5.1 %
• Capex ₹11–11.5 lakh crore
• Income-tax relief up to ₹3–3.5 lakh exemption
• Major rural stimulus (PM-KISAN increase or cash transfer)
• Green-energy PLI expansion
• No major tax hikes on capital markets

Actual

• Fiscal deficit 4.8 % (better than expected)
• Capex ₹11.4 lakh crore (within range)
• Exemption limit ₹4 lakh + higher standard deduction (more generous than expected)
• PM-KISAN increase to ₹8,000 (in line with expectations)
• Green hydrogen & battery storage outlays doubled (stronger than expected)
• LTCG & STT hikes (mild surprise, but smaller than feared)

Market and Macro Impact

• Stock market reaction — Nifty rose 1.1 % on Budget day (closing 24,980), led by infra (L&T +4.5 %), defence (HAL +5.8 %), auto (Tata Motors +4.2 %) and green energy (Adani Green +6 %). Mid-cap and small-cap indices gained 1.5–2 %.
• Bond yields — 10-year G-sec yield softened 8–12 bps to 6.78 % on better-than-expected fiscal glide path.
• Inflation outlook — Food inflation likely to stay 5–6 % due to PM-KISAN cash transfer; core inflation expected to moderate to 3.7–4.1 %.
• Growth impulse — Tax relief + capex continuity expected to push private consumption growth to 7.8–8.2 % and overall GDP growth to 7.0–7.4 % in FY27.
• Risks — Monsoon dependence, global commodity spikes, or slippage in disinvestment (target ₹55,000 crore) could pressure yields.

Political and Social Resonance

The budget was received positively by industry bodies (CII, FICCI, Assocham) for capex continuity and manufacturing incentives. Farmers’ unions welcomed the PM-KISAN increase but demanded a legal MSP guarantee. Opposition (Congress, TMC, SP) criticised “no bold rural jobs programme” and “continued corporate bias”.

The middle-class tax relief was widely welcomed on social media, with #TaxRelief2026 trending positively. Women’s groups appreciated the skilling allocation but noted the absence of a large-scale women’s employment scheme.

Conclusion: Steady State with Targeted Thrust

Union Budget 2026–27 is a careful, execution-focused exercise—continuing capex momentum, providing middle-class relief, accelerating green manufacturing, and maintaining fiscal discipline. It avoids major populist measures or structural tax overhauls, focusing instead on delivering existing schemes while laying groundwork for the big pre-election budget in 2027–28.

Whether it delivers the targeted 7.8–8.2 % real growth will depend on monsoon performance, global commodity prices, private investment response and implementation speed. For now it is a “steady-state” budget for a republic that is ambitious yet mindful of fiscal limits.