NEW DELHI: Finance Minister Nirmala Sitharaman, on February 1, presented her ninth consecutive Union Budget, outlining a ₹53.5 lakh crore fiscal plan for 2026-27 that blends sustained public investment with fiscal consolidation, while pivoting decisively towards emerging sectors such as data infrastructure, creative industries, advanced manufacturing and strategic minerals.
Describing it as the “Budget of the Three Kartavyas”, Sitharaman said the government’s priorities for the coming year would rest on accelerating economic growth, strengthening domestic capabilities, and preparing India for long-term global competitiveness under the broader “Viksit Bharat” vision.
Despite global economic uncertainty, the government projected confidence in India’s macroeconomic fundamentals, pegging the fiscal deficit at 4.3% of GDP for FY27, signalling continued commitment to fiscal discipline without curtailing growth-supportive spending.
Overall Allocation and Fiscal Strategy
The total expenditure for FY27 has been estimated at ₹53.5 lakh crore, with the government maintaining a sharp focus on capital expenditure as the primary growth engine. Net tax receipts are projected at ₹28.7 lakh crore, while gross market borrowings have been fixed at ₹17.2 lakh crore, reflecting a calibrated approach to financing the deficit.
Sitharaman reiterated that public investment would continue to “crowd in” private capital, particularly in infrastructure, logistics, manufacturing and digital ecosystems. The government expects this strategy to help sustain around 7% real GDP growth, supported by strong domestic demand and improving investment sentiment.
Capital Expenditure Remains the Growth Anchor
Capital expenditure for FY27 has been raised to ₹12.2 lakh crore, marking a 9% increase over the previous year. The allocation reinforces the government’s belief that high-quality public spending has a multiplier effect on jobs, productivity and long-term economic capacity.
Capex will be directed towards transport networks, urban infrastructure, energy transition projects, digital public infrastructure and strategic manufacturing, with ministries instructed to front-load spending to maximise economic impact.
New Income Tax Act, 2025: Structural Overhaul
A major reform announcement came in the form of the New Income Tax Act, 2025, which will take effect from April 1, 2026, replacing the six-decade-old Income Tax Act of 1961. The Finance Minister emphasised simplification of language, reduction in sections, and digitised compliance, while indicating that the law provides the framework for future rationalisation of tax structures.
The following slab structure was outlined as part of the new regime framework under the proposed Act, though officials indicated that further clarifications would be issued during the legislative process.
Income Tax Slabs under the New Regime
| Annual Income | Tax Rate |
|---|---|
| Up to ₹4 lakh | Nil |
| ₹4 lakh – ₹8 lakh | 5% |
| ₹8 lakh – ₹12 lakh | 10% |
| ₹12 lakh – ₹16 lakh | 15% |
| ₹16 lakh – ₹20 lakh | 20% |
| ₹20 lakh – ₹24 lakh | 25% |
| Above ₹24 lakh | 30% |
The standard deduction has been retained at ₹75,000, effectively making income up to ₹12.75 lakh tax-free under the new regime.
Additionally, a six-month window for filing revised returns has been introduced, allowing taxpayers to correct errors or omissions without immediate penal consequences.
Corporate Taxation and Capital Market Changes
The Budget altered the taxation of share buybacks, which will now be taxed as capital gains in the hands of shareholders, instead of being taxed at the company level. The move, according to the government, is aimed at improving tax equity and protecting minority shareholders.
The Finance Minister also announced a reduction in Tax Collected at Source (TCS) from 5% to 2% on overseas tour packages, remittances for education, and medical treatment abroad.
The Budget also proposed an increase in Securities Transaction Tax (STT) on select market instruments, a move that is expected to have implications for trading volumes, particularly in derivatives segments.
Sitharaman also announced the constitution of a high-level committee to review the banking sector, tasked with examining the role of banks in supporting India’s long-term growth ambitions under the Viksit Bharat framework. The committee will assess regulatory structures, credit delivery mechanisms and capital adequacy to strengthen the resilience of the financial system.
Railways and High-Speed Connectivity
The Ministry of Railways has been allocated ₹2.75 lakh crore, with emphasis on safety upgrades, network expansion and speed enhancement.
A key announcement was the launch of seven new High-Speed Rail (HSR) corridors, intended to function as inter-city economic growth corridors. These include:
- Mumbai–Pune
- Pune–Hyderabad
- Hyderabad–Bengaluru
- Hyderabad–Chennai
- Chennai–Bengaluru
- Delhi–Varanasi
- Varanasi–Siliguri
The government said these corridors would significantly reduce travel time, boost regional commerce and integrate labour markets.
Logistics, Ports and Urban Infrastructure
To reduce logistics costs and improve supply chain efficiency, the Budget introduced a Coastal Cargo Promotion Scheme, aimed at increasing the share of coastal shipping and inland waterways in freight movement.
The government also announced the creation of City Economic Regions (CERs), with ₹5,000 crore per region allocated annually for five years, to support planned urbanisation in Tier-2 and Tier-3 cities through investments in housing, transport, services and manufacturing clusters.
To attract private investment, an Infrastructure Risk Guarantee Fund will be established to provide partial credit guarantees for large infrastructure projects.
Data Centres and Digital Infrastructure
Recognising the strategic importance of data and artificial intelligence, the Budget announced policy support and incentives for large data centres, including faster clearances and encouragement for renewable energy use. The government also announced long-term tax incentives for data centre and cloud infrastructure projects, positioning them as critical infrastructure to support India’s AI, fintech and digital services expansion.
Manufacturing, Semiconductors and Biopharma
The government launched India Semiconductor Mission (ISM) 2.0, focusing on developing indigenous intellectual property, materials and semiconductor equipment.
Outlays for electronic component manufacturing have been increased to ₹40,000 crore, while Biopharma SHAKTI, with an allocation of ₹10,000 crore, aims to transform India into a global innovator in biologic medicines.
The Budget also announced select customs duty rationalisation on strategic inputs and essential items to support domestic manufacturing and healthcare affordability.
Defence and Strategic Capabilities
The defence budget has been raised to ₹7.85 lakh crore, with a capital outlay of ₹2.19 lakh crore for modernisation.
A Rare Earth Corridors initiative was announced to support mining and R&D activities in Odisha, Andhra Pradesh, Kerala and Tamil Nadu, aimed at securing critical minerals essential for defence, electronics and clean energy technologies.
Creative Economy and Employment
For the first time, the Budget formally recognised the Orange Economy, covering creative and content-driven industries such as animation, gaming, visual effects and digital media.
The government announced the establishment of AVGC labs in 15,000 secondary schools and 500 colleges, alongside the formation of a high-powered Education-to-Employment (EEE) committee to better align skill development with labour market requirements.
Agriculture and Rural Economy
The Budget placed renewed emphasis on agriculture and allied sectors, announcing measures to strengthen farm productivity, value chains and climate resilience. Sitharaman highlighted the use of AI-enabled platforms to improve access to best practices, market intelligence and crop advisory services for farmers.
Additional focus was placed on reservoir development, fisheries, and rural infrastructure, alongside continued support for rural livelihoods through targeted schemes under the broader Gram Swaraj framework.
Women, Education and Social Infrastructure
Under the Nari Shakti framework, ₹4.49 lakh crore has been allocated for programmes supporting women’s livelihoods, financial inclusion and social infrastructure.
The Budget announced the construction of new girls’ hostels and the expansion of Lakhpati Didi 2.0, targeting five crore women.
Geopolitics and External Assistance
Reflecting what the government described as “strategic realism,” India’s foreign aid allocations have been rationalised.
The allocation for the Chabahar Port project in Iran has been reduced to zero, indicating a strategic pause amid shifting geopolitical and sanctions-related considerations.
Country-wise External Aid Allocation (FY 2026-27)
| Country | Allocation (₹ crore) |
|---|---|
| Bhutan | 2,068 |
| Nepal | 700 |
| Maldives | 400 |
| Bangladesh | 60 |
The 2026-27 Union Budget lays out the government’s plan to balance fiscal prudence with investment-led growth. Key allocations across infrastructure, technology, defence, and social sectors signal a focus on both economic expansion and strategic priorities, while initiatives in emerging areas such as the creative economy and data infrastructure point to long-term development goals.
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