As Finance Minister Nirmala Sitharaman presents the Union Budget for 2026-27 on Sunday, she faces a critical balancing act: propelling India’s growth amid global uncertainty while signalling a credible path to rein in rising public debt.
The budget arrives at an opportune political moment. With the NDA government at its mid-term and the next general election three years away, there is room for calculated policy risks. This window allows the government to push a reform agenda, even as it navigates electoral considerations in key states like West Bengal and Tamil Nadu.
The pressing challenge is managing India’s public debt, which stands near 56% of GDP. After years of elevated spending, particularly on infrastructure capex, the budget must reinforce a commitment to fiscal consolidation. Expect a roadmap targeting a fiscal deficit of around 4.2% for FY27, easing to 4% or below thereafter, even as capital expenditure on roads, railways, and ports continues, potentially with greater private participation.
Smart Reforms Over Big Bang
The budget is likely to favour ‘smart’, targeted interventions over sweeping changes. Key expectations include:
Tax Tweaks: Minor adjustments to income tax slabs, a strong push to simplify compliance, and a potential (though debated) introduction of joint taxation for couples.
Easing Business Burdens: Industry demands to simplify the complex TDS (Tax Deducted at Source) system by consolidating rates and exempting B2B payments already under GST.
Boost for MSMEs: Targeted incentives for small businesses via easier credit, deregulation, and support under presumptive taxation schemes.
Tech and Green Growth as Core Pillars
A defining theme will be a sharp tilt towards technology and sustainability. Look for:
Tax incentives for artificial intelligence, robotics, data centres, and high-performance computing to position India as a digital hub.
Enhanced allocations and tax breaks for renewable energy, green hydrogen, battery storage, and EV manufacturing, supporting India’s 500 GW non-fossil fuel target by 2030.
Sensitive Themes: Jobs, Welfare, and Defence
Employment: With concerns over industrial obsolescence and AI-driven “jobs shock,” implementation of the four labour codes could be emphasised to formalise jobs and expand social security.
Social Safety Net: The budget may extend Ayushman Bharat health cover to gig workers, expand subsidised loans for first-time entrepreneurs (especially women), and offer micro-credit cards for small firms.
Defence: In a tense geopolitical climate, defence spending is set for a substantial increase, alongside pushes for investment in domestic defence industrial complexes.
Budget 2026-27 is expected to be incremental rather than transformative, fiscally cautious yet investment-heavy. While it won’t single-handedly solve India’s structural challenges in employment and productivity, it aims to walk the tightrope between sustaining the growth story and charting a responsible path to fiscal health.