Union Budget 2026-27 Expectations

The Union Budget for the fiscal year 2026-27 will be presented on February 1, 2026, by Finance Minister Nirmala Sitharaman. The focus is on stimulating consumption, encouraging private investments, and fostering employment generation, alongside maintaining fiscal prudence. Decisive reforms to revitalise consumption and jobs, major reforms expected in the areas of taxes, and incentives to attract fresh investment top the list. Economists pitched for reduction in income tax rates and customs tariff, support measures to aid exports, targeted interventions for skilling and improving farm productivity while continuing a capex push to be considered in the Union Budget for 2026-27. Employment generation remains a key focus area for the government.

Here are the key expectations from the Indian budget:

• Income Tax Slabs: Only marginal tweaks are expected under the new tax regime, with a greater emphasis on simplifying compliance mechanisms rather than structural changes.
• Joint Taxation for Married Couples: The government may introduce a joint taxation framework for married couples to ease compliance and provide targeted tax benefits.
• Fiscal Strategy: A key expectation is a clear roadmap to reduce the debt-to-GDP ratio starting from the 2026-27 fiscal year. The government aims for a fiscal deficit of around 4.4% of GDP for FY26 and to reduce it further to 4% in FY27.
• Core Growth Drivers: The government is expected to continue its emphasis on public capital expenditure (capex), particularly in infrastructure sectors like railways, roads, and power, to crowd in private investment. Economic growth is expected to remain robust at ~7–7.5%, supported by resilient domestic consumption. However, concerns persist around job creation and global uncertainties, warranting cautious policy support.
• Infrastructure & Logistics: Continued high allocations for infrastructure and logistics are expected to improve efficiency and attract long-term capital investment.
• Manufacturing Push: Enhanced depreciation allowances are likely to support domestic manufacturing and accelerate capacity creation.
• AI & Robotics Incentives: Targeted tax incentives may be introduced to promote investments in artificial intelligence and robotics-led innovation.
• GST Reforms: Continued rationalisation and simplification of GST processes should aid smoother working capital cycles for businesses.
• Customs & Trade Reforms: Measures such as faster dispute resolution and tariff simplification are expected to improve trade efficiency.
• Real Estate Support: Potential reduction in stamp duty and additional housing incentives could provide a boost to the real estate sector.
• Global Engagement: Policy initiatives aimed at attracting foreign capital and fostering technology partnerships are likely to remain a priority.
• India-EU FTA: A Free Trade Agreement with the EU concluded after decades could have trade and tariff implications across sectors — boosting exports and reducing costs for labor-intensive industries.

Sector-Wise Expectations from Union Budget 2026

Automotive

The automobile sector anticipates reforms aimed at promoting sustainable and innovative technologies:

• EV Manufacturing Incentives: Boost to EV manufacturing through incentives, including potential tweaks to the Production Linked Incentive (PLI) schemes to include more EV-specific components, batteries, and advanced electronics.
• Demand Stimulation Measures: Industry players want the Budget to further stimulate consumer demand — particularly in passenger vehicles and commercial vehicles — through tax measures or incentives to sustain growth momentum.
• Charging & Clean Mobility Push: Budget expectations include increased focus on charging infrastructure, battery ecosystem development, and clean mobility to complement India’s net-zero and climate goals.
• Tax Rationalisation & Affordability: Stable and rational indirect tax structure to make vehicles more affordable. Possible incentives for financing/leasing solutions to support purchases.
• Battery Localisation & REPM Support: Continue to ease customs duty, taxes; provide incentives and capital subsidy to boost production of locally manufactured EV batteries. There may be further support provided to REPM (Rare Earth Permanent Magnet) scheme launched in December 2025.
• Higher PLI Allocation for Auto Sector: Proposed to significantly increase the allocation for the Production Linked Incentive (PLI) scheme for automobiles and auto components.

Agriculture

Agriculture remains a cornerstone of the Indian economy. Key expectations include:

• Farmer Income & Livelihood Support: Policies and allocations aimed at improving earnings and livelihood resilience for farmers.
• Financial Support and Credit Access: The budget is expected to focus on expanding affordable agricultural credit, strengthening the Kisan Credit Card (KCC) system, and improving access for small and marginal farmers, particularly women farmers.
• Technology and Digital Integration: Increased investment in research and development (R&D) and the adoption of digital solutions, including agri-drones, IoT sensors, and AI-driven analytics, to enhance efficiency and productivity.
• Post-Harvest Infrastructure Push: Higher support for cold chains, modern warehouses, packhouses, post-harvest facilities and rural logistics to cut waste and improve market access.
• Crop Diversification and Nutrition: There is an anticipated focus on promoting crop diversification into high-value segments like pulses, oilseeds, fruits, and vegetables, with policy support to achieve self-sufficiency and improve nutritional outcomes.
• Climate-Resilient Agriculture: There is a strong push for a comprehensive climate-smart agriculture policy, including incentives for agroforestry, soil and water conservation, and the adoption of drought-tolerant seeds.

Railway

The railway sector is poised to receive a substantial boost in FY27 with a projected 15-20% increase in capital expenditure:

• Boost private sector participation: The budget should enable innovative, investor-friendly models and risk frameworks to attract private investments in rail infrastructure and operations, reducing sole reliance on government funding.
• Strengthen manufacturing capabilities: Expand and support domestic manufacturing of rail rolling stock, components, and advanced systems (like Vande Bharat trains and safety tech) to make India a global rail production hub.
• Expand and optimise Dedicated Freight Corridors (DFCs): Build new freight corridors and enhance capacity and speed on existing ones, with intermodal terminals to improve efficiency and attract more cargo traffic.
• Develop supportive institutions and regulation: Create an institutional framework that enhances transparency, operational flexibility and efficiency, balancing social goals with business needs and encouraging innovation.

Real Estate

The real estate industry expects measures to boost housing affordability and infrastructure development:

• Affordable Housing & Urban Push: Budget focus on affordable housing, urban infrastructure and policy continuity to sustain residential demand and housing supply momentum.
• Homebuyer Tax Incentives: Tax incentives expected for homebuyers, higher interest deduction limits and rationalisation of GST and construction-related levies.
• Commercial Real Estate Demand: Strong support anticipated for commercial real estate driven by GCC expansion, office demand recovery and global occupier interest.
• Data Centres & New-Age Assets: Data centres and new-age assets likely to receive policy clarity, incentives and infrastructure support to attract long-term capital.
• Developer Financing & Regulatory Ease: Developers seek easier financing, faster approvals, industry status and stable regulations to improve execution and liquidity conditions.

Healthcare

With a focus on strengthening healthcare infrastructure and accessibility, the sector’s demands include:

• Higher Public Healthcare Allocation: Academic study urges significant increase in public healthcare spending ahead of Union Budget 2026-27 to reduce costs and inequality.
• Rising Medical Cost Burden: Research highlights rising medical costs, heavy out-of-pocket spending and limited public investment harming vulnerable groups.
• Health Infrastructure & Access Reforms: Findings strengthen calls for Budget reforms to boost health infrastructure funding and improve access for all.

Renewable Energy and Power

The power sector’s focus aligns with India’s sustainability goals:

• Higher Renewable Energy Allocation: Anticipation a higher budgetary allocation for renewable energy, focusing on local manufacturing and clean energy incentives. This is crucial for achieving India's ambitious target of 500 GW from non-fossil sources by 2030.
• Solar Manufacturing Incentives: Industry wants deeper incentives and tax support across the solar manufacturing value chain including polysilicon, ingots, wafers and modules.
• BESS Policy & GST Support: Battery energy storage (BESS): needs GST rationalisation, viability funding, and policy recognition as core grid infrastructure.
• Grid & Transmission Upgrades: Strong demand for grid stability investments and transmission upgrades to support high renewable capacity growth.

Telecom and Digital Infrastructure

The telecom sector anticipates policies to accelerate digital transformation:

• Regulatory Levy Rationalisation: Telecom leaders seek reduced regulatory levies and lower licence fees to ease financial burden and expand next-generation connectivity.
• Digital Infrastructure Incentives: Calls for advanced digital infrastructure support—incentives for data centres, cloud ecosystems, AI and high-performance computing capacity.
• Cybersecurity Spending Boost: Increased allocation for cybersecurity initiatives to protect against rising cyber threats and frauds.
• Policy Clarity & Cybersecurity: Industry wants policy clarity, cybersecurity investment, skilled talent development and AI deployment frameworks to boost innovation and resilience.
• Operational Cost Reforms: Operational cost reforms urged, including power tariff rationalisation, smart metering, and renewable energy integration.

Defence

The defence sector is expected to receive significant attention in the upcoming budget, with expect capital outlay to rise by 10-12%, several key expectations are:

• Higher capital allocation: Budget focus on capital acquisitions over salaries and pensions to boost long-term defence asset creation and domestic order visibility.
• Atmanirbhar Bharat thrust: Expansion of indigenisation lists, stronger fiscal incentives and simpler licensing to deepen domestic and private defence manufacturing.
• Increased R&D funding: Higher allocations expected for iDEX and ADITI to accelerate AI, drones, cyber warfare and advanced defence technologies.
• Export promotion measures: Easier credit access and targeted incentives likely to support defence exports and help achieve ambitious global market targets.

Infrastructure Development

Infrastructure development remains central to economic growth. Key priorities include:

• Roads & highways: Increased investment in rural infrastructure to improve connectivity and support rural development.
• Railways: Large outlay (~₹2.65 lakh crore) likely for modernization, track upgrades, Kavach 4.0 safety systems, and new-age trains.
• Urban infrastructure: Strong focus on cities with higher spending on metros, buses, water supply, sanitation and waste management systems.
• Green & digital infrastructure: Incentives expected for renewables, grid upgrades, BESS, green hydrogen, data centers and AI computing infrastructure.
• Private participation & financing: Push for improved PPP models and wider use of InvITs and REITs to attract long-term institutional capital.

Textile Industry

The textile sector, a significant employment generator, seeks reforms to boost competitiveness and expand production:

• PLI Expansion for Apparel: Expansion of the PLI scheme to include garments and value-added products.
• Raw Material Duty Rationalisation: Reduction in duties on yarn and raw materials to enhance global competitiveness.
• Technology & sustainability: Proposals include Green Technology Scheme, National Textile Fund, and a revamped alternative to TUFS.
• Trade facilitation: Policy support sought to leverage FTAs, simplify Rules of Origin compliance, and strengthen domestic textile value chains.

Insurance

Industry expectations for the Union Budget 2026 focus on structural reforms to achieve "Insurance for All by 2047”:

• New Tax Regime Deductions: There is a strong demand to include insurance-related deductions (like Section 80D) in the new tax regime to incentivize adoption among those who have moved away from the old regime.
• Higher Health Insurance Tax Deductions: Higher limit for tax deduction (under 80D) from the current limit of Rs 25,000/50,000 to align with rising medical costs. Allowing health insurance premium deduction under the new tax regime.
• Life & Pension Insurance Tax Alignment: Tax alignment, including separate tax deduction for premiums paid on life insurance products, including term life and pension products, to further increase affordability and penetration.

Banks, NBFCS and Fintechs

The banking and financing sector’s focus aligns with India’s sustainability goals:

• CGFMU Support for Microfinance: Increased outlay of Credit Guarantee Fund for Micro Units (CGFMU) for microfinance loans up to Rs 40bn. There’s a possibility that standard basic rate will be reduced to 0.5% of sanctioned amount for the first year for micro loans.
• CGTMSE Boost for SME Credit: Increased outlay for Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) for banks and NBFCS SME exposures.
• Deposit Mobilization: Expectation of new tax incentives or measures to encourage household savings to flow back into bank deposits, balancing the high loan demand and tighter liquidity conditions.

Hospitality and Tourism

To revitalize tourism and hospitality, the sector seeks supportive measures:

• GST Relief for Luxury Hospitality: Reduction of GST on luxury accommodations.
• PLI Support for Tourism Infrastructure: Inclusion in the PLI scheme for tourism infrastructure.
• Infrastructure Development & Ease of Doing Business: Enhanced investment in air, rail, and road connectivity—especially to Tier II/III cities—is expected, along with a single-window clearance system for hospitality projects and continued focus on developing 50 world-class tourist destinations.

Conclusion

The Union Budget 2025–26 aims to balance growth ambitions with fiscal discipline while strengthening a self-reliant economy. Through sector-focused measures and transformative reforms, it seeks to accelerate India’s journey toward a $5 trillion economy. Strategic investments in infrastructure, education, healthcare, renewable energy, and manufacturing are expected to support sustainable and resilient growth. A continued push on initiatives such as Make in India and Aatmanirbhar Bharat highlights the government’s focus on boosting domestic production, reducing import dependence, and enhancing global competitiveness. Beyond a fiscal exercise, the budget serves as a long-term roadmap emphasizing reforms, ease of doing business and living, and inclusive, sustainable economic progress.

Follow our WhatsApp channel

---