Union Budget 2026: Disinvestment and Capex to Lead FY27 Growth

Introduction: A Budget of Continuity Amid Global Headwinds

As Finance Minister Nirmala Sitharaman prepares to present the Union Budget for the fiscal year 2026-27 on February 1, 2026, the focus is squarely on maintaining economic stability while navigating a complex global landscape. The upcoming budget is anticipated to reinforce the government's commitment to fiscal consolidation and infrastructure-led growth, rather than introducing populist measures. Against a backdrop of geopolitical tensions and trade uncertainties, the budget's narrative is expected to center on strengthening domestic fundamentals through strategic capital expenditure and a renewed push for disinvestment to generate non-tax revenues.

Market participants expect a continuation of the themes seen in previous years: a structured approach to spending, an emphasis on long-term capacity building, and a clear roadmap for reducing the nation's debt. The core pillars of the budget will likely be fiscal discipline, a significant allocation for capital spending, and policies aimed at improving the ease of doing business and creating jobs.

The Ambitious Disinvestment Agenda for FY27

A critical component of the government's revenue strategy for FY27 will be disinvestment and asset monetization. After an expected shortfall in FY26 receipts due to execution delays, analysts project a significantly higher target for the upcoming fiscal year. Estimates for the disinvestment target range widely, from ₹50,000 crore to as high as ₹1 lakh crore. This revenue stream is crucial for funding the government's ambitious capital expenditure plans without compromising fiscal targets.

Several high-profile strategic sales are anticipated to be part of this push. The sale of IDBI Bank and the Shipping Corporation of India are prominent transactions that market watchers will be closely monitoring. While the procedural work for these sales is underway, potential slippages could push their completion into FY27. The government is also considering additional stake sales in Public Sector Undertaking (PSU) banks like the Central Bank of India, UCO Bank, and Punjab and Sind Bank to bolster non-debt capital receipts.

Capital Expenditure: The Engine of Economic Growth

Continuing its focus on infrastructure as a primary growth driver, the government is expected to increase its capital expenditure outlay for FY27. Projections suggest a year-on-year increase of 8% to 15%. This sustained investment is aimed at improving logistics, enhancing connectivity, and crowding in private investment. The bulk of this spending will likely be directed towards key sectors that have a high multiplier effect on the economy.

Railways and roads are set to remain major beneficiaries. The railway budget could see an allocation increase of 10-15%, focusing on track infrastructure, new routes, safety systems like Kavach, and rolling stock. Similarly, allocations for the Ministry of Road Transport & Highways are expected to grow by 9-10%. Defence is another sector poised for a significant boost, with an expected allocation growth of 12-15% to support modernization and promote domestic manufacturing.

Key Budget Expectations at a Glance

Navigating Fiscal Prudence and Revenue Streams

While pushing for growth through capex, the government remains committed to fiscal discipline. The fiscal deficit is projected to be brought down to around 4.3% of GDP in FY27 from 4.4% in FY26. The medium-term goal is to reduce the central government's debt-to-GDP ratio, which currently stands at over 57%, to a more sustainable level.

To balance the books, the government will rely on multiple revenue streams beyond taxes. Dividends from the Reserve Bank of India (RBI) and other PSUs are expected to be a significant contributor, potentially reaching ₹3.8 trillion. Although the blockbuster RBI dividend of FY26 is unlikely to be repeated, it remains a vital source of non-tax revenue. Additionally, some analysts suggest a possible increase in fuel taxes by around ₹2 per litre as a measure to shore up revenues.

Sector-Specific Initiatives and Reforms

The budget is also expected to announce targeted measures for various sectors to address specific challenges and unlock growth potential.

• Telecom: The sector may see structural relief, including a reduction in license fees, reforms related to Adjusted Gross Revenue (AGR) dues, and tax holidays for data centers to support the digital economy.
• Real Estate: To revive housing demand, the budget could reintroduce the Credit Linked Subsidy Scheme (CLSS) for affordable housing and revise the price cap for affordable homes from ₹45 lakh to ₹75 lakh.
• Pharma and Healthcare: Increased public health spending, incentives for R&D, and continued support for domestic manufacturing of Active Pharmaceutical Ingredients (APIs) are likely priorities.
• Financials: The focus will be on simplification, such as uniform tax treatment for interest income and expanding credit guarantee schemes for MSMEs.

Conclusion: A Balanced Act of Growth and Stability

The Union Budget 2026-27 is shaping up to be a pragmatic and structured financial plan. It aims to build on India's domestic strengths to counter global economic pressures. By prioritizing capital expenditure in critical infrastructure while pursuing an ambitious disinvestment agenda, the government is signaling a clear strategy: invest in long-term growth without derailing fiscal consolidation. For markets, the message is one of continuity and credibility. The success of this budget will ultimately depend on the government's ability to execute its plans, particularly in achieving its disinvestment targets and ensuring that capital outlays translate into on-the-ground progress.