Union Budget 2026-27: Strengthening Infrastructure and Manufacturing for Viksit Bharat

A Strategic Blueprint for Economic Resilience

Finance Minister Nirmala Sitharaman presented the Union Budget 2026-27 in the Lok Sabha on February 1, 2026. This landmark presentation, occurring on a Sunday for the first time, marks the ninth consecutive budget for the Finance Minister. The budget arrives at a time of global economic fragmentation, positioning India as a stable pillar of growth. The government has outlined a clear priority for sustaining momentum through public capital expenditure, infrastructure development, and manufacturing-led growth. This fiscal roadmap is designed to enhance competitiveness while ensuring long-term value creation for the domestic economy.

Macroeconomic Stability and Growth Projections

India continues to be one of the fastest-growing major economies, with real GDP growth estimated at 7.3-7.4 percent for the current fiscal year. The Economic Survey 2026 suggests that medium-term growth potential has strengthened, moving from an earlier 6.5 percent to a range of 7.0-7.5 percent. This growth is supported by resilient domestic demand and a maturing manufacturing base. Inflation remains benign, with the Consumer Price Index (CPI) recorded at 0.71 percent in late 2025, providing the Reserve Bank of India (RBI) room for accommodative monetary policy. The central bank has already responded by lowering the repo rate to 5.25 percent to support private investment.

Fiscal Consolidation and Debt Management

The government remains committed to a steady glide path for fiscal consolidation. The fiscal deficit for FY26 is targeted at 4.4 percent of GDP, a reduction from the 4.8 percent revised estimate of the previous year. The long-term goal is to reach the 3 percent target by FY29. Central government liabilities are estimated at 56.1 percent of GDP for 2025-26, with a target to reduce this to 50 percent by March 2031. This fiscal prudence is intended to maintain macroeconomic credibility while ensuring funds are available for productive capital expenditure. Revenue collections remain robust, with GST and direct taxes showing resilience despite global headwinds.

Infrastructure and Urban Transformation

Infrastructure remains the backbone of the government's expenditure strategy. A significant highlight is the establishment of an Urban Challenge Fund with an outlay of INR 1 lakh crore to drive city development projects. Additionally, each infrastructure-related ministry is tasked with formulating a three-year pipeline of projects to be implemented via Public-Private Partnerships (PPP). The National Geospatial Mission will also be launched to modernise land records and urban planning, ensuring better execution capacity at the state level. These measures are expected to improve urban connectivity and support the development of tier-2 cities.

Boosting Manufacturing and MSME Competitiveness

To strengthen the "Make in India" initiative, the budget proposes several measures for the MSME sector. Credit guarantee covers are being significantly increased, with limits for micro and small enterprises rising from INR 5 crore to INR 10 crore. For startups, the limit is set to reach INR 20 crore. Furthermore, the investment and turnover limits for MSME classification are expected to be doubled, allowing more firms to benefit from government schemes. A new Maritime Development Fund with a corpus of INR 25,000 crore will also support the shipping and logistics industry, enhancing India's export competitiveness.

Energy Security and the Nuclear Mission

The budget signals a strategic shift toward energy efficiency and security. A new Nuclear Energy Mission will be launched with an outlay of INR 20,000 crore, focusing on the development of small modular reactors. This mission will be supported by amendments to the Atomic Energy Act to allow private sector partnerships. Furthermore, the government is focusing on critical minerals to reduce import dependence, especially following global supply chain disruptions. The goal is to reconcile India's growth ambitions with its climate objectives through cost-effective energy instruments.

Taxation and Regulatory Reforms

The Finance Bill introduces incremental rationalisation in the tax framework. The income tax exemption for startups has been extended to those incorporated up to April 1, 2030. In the indirect tax space, GST has emerged as a stable revenue pillar, with gross collections reaching INR 17.4 lakh crore. The budget also proposes the Jan Vishwas Bill 2.0 to decriminalise over 100 provisions across various laws, aiming to improve the ease of doing business. The FDI limit for the insurance sector is proposed to increase from 74 percent to 100 percent for specific companies that invest their entire premium within India.

Social Welfare and Employment Generation

The budget prioritises human capital through expanded healthcare and education initiatives. The government plans to add 75,000 medical seats over the next five years, with 10,000 seats being added in the immediate year. For the gig economy, workers will now be provided access to healthcare under the Ayushman Bharat scheme. The PM SVANidhi scheme for street vendors is being revamped to include UPI-linked credit cards with a limit of INR 30,000, promoting financial inclusion in the informal sector. These steps are designed to ensure that economic growth remains inclusive and reaches the underserved sections of society.

Market Impact and Investor Sentiment

Equity markets are closely monitoring the government's commitment to fiscal discipline and policy continuity. The focus on capital expenditure is expected to benefit sectors such as construction, capital goods, and defence. Analysts suggest that the shift toward domestic manufacturing and R&D will strengthen strategic autonomy. While the trade deficit remains a point of concern, the robust foreign exchange reserves, which reached USD 693.32 billion in late 2025, provide a significant cushion against external volatility. Investors are looking for signs of predictable regulatory frameworks to sustain long-term capital inflows.

Analysis of the Policy Direction

The Union Budget 2026-27 reflects a philosophy of "cautious pragmatism." By moving away from short-term macro management toward long-term productivity and institutional reform, the government is attempting to upgrade India's medium-term growth potential. The emphasis on smart deregulation and stronger execution capacity at the state level suggests a more mature approach to economic governance. The focus on energy efficiency and digital infrastructure aligns with global trends, ensuring India remains a preferred destination for international capital. This strategic reorientation is intended to reinforce security imperatives without diluting economic trajectory.

Conclusion

The Union Budget 2026-27 provides a comprehensive roadmap for India's journey toward becoming a developed economy by 2047. By balancing fiscal consolidation with targeted spending in infrastructure, manufacturing, and social welfare, the government aims to create a resilient economic ecosystem. As the global landscape continues to evolve, India's focus on internal reforms and strategic investments will be crucial in maintaining its position as a global growth leader. The upcoming months will be defined by the execution of these policies across states to deliver durable economic value.