Union Budget 2026: Capex Hits Rs 12.2 Lakh Crore as Fiscal Deficit Targets 4.3%

Finance Minister Nirmala Sitharaman presented the Union Budget for FY2026-27 in Parliament on February 1, 2026. This marks her ninth consecutive budget, setting a record for the longest-serving finance minister in this role. The budget arrives at a time when the Indian economy is navigating global geopolitical tensions and shifting trade dynamics. The total expenditure for the upcoming fiscal year is pegged at Rs 53.47 lakh crore, reflecting the government's commitment to infrastructure-led growth and fiscal discipline.

Strategic Shift in Capital Expenditure

The most prominent feature of the 2026 budget is the continued emphasis on capital expenditure. The government has allocated Rs 12.22 lakh crore for capex in FY27, representing a 9 percent increase from the revised estimates of the previous year. Over the last decade, capital spending has seen a dramatic rise, growing from Rs 2.63 lakh crore in FY18. This 360 percent increase over ten years signals a structural shift in government spending, moving away from pure consumption toward long-term asset creation in railways, roads, and ports.

Fiscal Consolidation and Deficit Targets

Finance Minister Sitharaman reaffirmed the government's commitment to fiscal consolidation. The fiscal deficit for FY27 is projected at 4.3 percent of GDP, down from the revised estimate of 4.4 percent in FY26. This follows the path set in FY22 to bring the deficit below 4.5 percent. The debt-to-GDP ratio is also estimated to improve, falling to 55.6 percent in FY27 from 56.1 percent in the previous year. The government aims to further reduce outstanding liabilities to approximately 50 percent of GDP by March 2031.

Defence and National Security Modernisation

The defence sector received a significant boost with a total allocation of Rs 7.85 lakh crore. A substantial portion of this, Rs 2.19 lakh crore, is earmarked for modernisation, representing a 21.84 percent increase. Specific allocations include Rs 63,733 crore for aircraft and aero engines. This hike is intended to strengthen India's military capabilities amid evolving regional security threats. Additionally, the allocation for defence pensions has been increased to Rs 1.71 lakh crore.

Rural Development and Social Welfare

In the realm of rural development, the government introduced the VB-G RAM G scheme with an allocation of Rs 95,692.31 crore. This initiative aims to foster self-reliant and developed villages. Meanwhile, the MGNREGA scheme has been allocated Rs 30,000 crore. The overall budget for the Department of Rural Development has seen a 21 percent increase, focusing on improving the quality of life in rural areas through infrastructure and employment support.

Manufacturing and Technology Incentives

To bolster the 'Make in India' initiative, the budget introduced several strategic missions. The India Semiconductor Mission 2.0 received an outlay of Rs 40,000 crore to capitalize on the momentum in the electronics sector. A new Biopharma Shakti Mission was launched with Rs 10,000 crore. Furthermore, the government proposed the creation of rare earth corridors in four states and three new chemical parks to strengthen domestic supply chains.

Taxation and Minimum Alternate Tax Reforms

On the taxation front, the Finance Minister proposed a reduction in the Minimum Alternate Tax (MAT) rate from 15 percent to 14 percent. This move is expected to provide relief to corporate taxpayers and improve the ease of doing business. Net tax receipts for FY27 are estimated at Rs 28.7 lakh crore. The government also announced plans to introduce a new income tax bill to simplify the existing tax structure and improve compliance.

Key Fiscal Indicators and Projections

Sectoral Allocations and SME Support

Environmental and Diplomatic Adjustments

The budget revealed a decrease in funding for pollution control, with the allocation dropping to Rs 1,091 crore from Rs 1,300 crore in the previous year. In terms of foreign aid, the allocation for Bangladesh was reduced by 50 percent to Rs 60 crore, reflecting shifting diplomatic priorities. Conversely, the Election Commission of India saw a 25.33 percent hike in its budget, receiving Rs 382.22 crore ahead of key upcoming elections.

Market Impact and Economic Analysis

The stock market's reaction to the budget was generally positive, particularly in the infrastructure, defence, and manufacturing sectors. The focus on capex is expected to crowd in private investment and support a nominal GDP growth rate estimated at 10.1 percent for FY27. Analysts suggest that the emphasis on fiscal consolidation while maintaining high growth spending provides a stable macroeconomic environment for investors. The introduction of a Rs 10,000 crore SME growth fund is also seen as a positive step for the MSME sector.

Conclusion

Union Budget 2026 presents a roadmap for a 'Viksit Bharat' by balancing aggressive capital spending with fiscal prudence. By prioritizing infrastructure, technology, and rural development, the government aims to position India as the world's third-largest economy by 2030. The focus now shifts to the implementation of these proposals and the government's ability to meet its revenue targets in a volatile global environment.