Expect another typical Modi budget for 2026-27: ‘Vikas’, something for ‘gareeb aadmi’, fiscal discipline

This budget will likely adopt a pragmatic approach, emphasising long-term stability rather than short-term stimulus, aiming to protect the country from external shocks while promoting the recovery of private investment

The Squirrels Bureau

The upcoming Union Budget, to be presented by Finance Minister Nirmala Sitharaman on February 1, is anticipated to stress policy continuity, fiscal prudence and growth stimulation amid global uncertainties like US tariffs and geopolitical tensions. 

As is the norm, the Economic Survey 2025-26 was tabled on January 30, a day before the budgetary announcements. It projects FY27 GDP growth at 6.8-7.2%, with a focus on productivity-led expansion rather than demand-driven measures. Expectations lean towards balanced spending to boost domestic demand, infrastructure, and self-reliance, without major populist shifts.

Fiscal framework and macroeconomic stability

The deficit is expected to be around 4.2-4.5% of GDP for FY27, on the lines of a gradual consolidation path toward 4% in the medium term. This includes sticking to a debt-reduction roadmap aiming for federal debt at 50% of GDP (±1%) by 2030-31.

A clear plan to lower the debt-to-GDP ratio is anticipated, with gross borrowing details under scrutiny to avoid pressuring bond yields or interest rates.

Emphasis on macroeconomic buffers, including managing inflation (especially food prices) and rupee stability, while addressing risks like a potential global financial crisis (10-20% chance, per the Economic Survey).

Capital expenditure and infrastructure

Public capital spending is expected to rise 10-15% to ₹12-13 lakh crore, maintaining its role as a growth driver. Focus areas include roads, railways, highways, power, multimodal mobility and urban development to reduce logistics costs and enhance connectivity.

Investments in rail modernisation, high-capacity corridors, and freight transport are highlighted to support sustainable urbanisation and position India as a competitive economy.

Tax reforms and relief measures

Modest relief for the middle class is anticipated, including raising the standard deduction to ₹1 lakh, introducing joint filing for married couples to lower tax liability, and possibly a new 25% slab for incomes of ₹30-50 lakh. Dramatic cuts are unlikely, with a shift towards simplifying compliance and rationalising slabs.

Expectations include harmonising capital gains taxation, simplifying TDS rules, and customs duty rationalisation to support ‘Make in India’, such as pruning duty slabs and targeted rate cuts for manufacturing.

Sectoral priorities and reforms

Manufacturing, defence, renewable energy (e.g., green hydrogen), MSMEs, auto, agriculture, AI, electronics, and news sectors like robotics. Incentives for expansion, clearer AI regulations, and boosts for green economy initiatives are expected.

Measures to create jobs, stabilise rural demand, and target welfare schemes more effectively. This includes potential shifts from programs like MGNREGA to new rural job schemes, amid uneven consumption growth (urban/premium segments outperforming rural/mass markets).

Push for reforms in competitiveness, including tariff rationalisation and incremental sector adjustments.

In all, this is going to be a pragmatic budget prioritising long-term stability over short-term stimulus, with an eye on shielding India from external shocks while fostering private investment recovery.