Budget 2026 Highlights: Capex Hiked to ₹12.2 Lakh Crore, Fiscal Deficit Targeted at 4.3%

Introduction to Union Budget 2026

Finance Minister Nirmala Sitharaman presented her ninth consecutive Union Budget on February 1, 2026, outlining the government's economic roadmap for the financial year 2026-27. The budget reinforces the administration's focus on sustained economic growth, fiscal discipline, and targeted interventions across key sectors to build a 'Viksit Bharat' by 2047. The minister emphasized a strategy of "reforms over rhetoric," ensuring that the benefits of growth reach all sections of society, including farmers, youth, and underprivileged communities.

Fiscal Consolidation and Key Economic Indicators

The government has laid out a clear path for fiscal prudence while continuing its push on public investment. The fiscal deficit for FY27 is projected at 4.3% of the GDP, a reduction from the revised estimate of 4.4% for FY26. This aligns with the commitment made in FY22 to bring the deficit below 4.5%. To fund this, net market borrowings through dated securities are estimated at ₹11.7 lakh crore, with gross borrowings at ₹17.2 lakh crore. The total expenditure for FY27 is pegged at ₹53.5 lakh crore, up from the revised estimate of ₹49.6 lakh crore in FY26. The debt-to-GDP ratio is also expected to improve, targeted at 55.6% for FY27.

A Major Push for Infrastructure and Manufacturing

A cornerstone of the budget is the significant increase in capital expenditure, which has been raised to ₹12.2 lakh crore for FY27. This investment is aimed at continuing the momentum in infrastructure development, particularly in Tier-2 and Tier-3 cities. Key infrastructure projects announced include the development of seven high-speed rail corridors connecting major cities like Mumbai-Pune and Delhi-Varanasi, and the operationalisation of 20 new National Waterways over the next five years.

To bolster domestic manufacturing, the budget introduced several strategic initiatives. The India Semiconductor Mission 2.0 will be launched with an increased outlay of ₹40,000 crore to foster an industry-led research and training ecosystem. A new scheme, Biopharma SHAKTI, has been proposed with an outlay of ₹10,000 crore over five years to strengthen the biopharmaceutical sector. Additionally, the government plans to establish three dedicated chemical parks, mega textile parks, and a scheme to promote the manufacturing of construction and infrastructure equipment.

Empowering Agriculture and the Rural Economy

The budget introduces 'Bharat Vistar', a multilingual AI-powered tool designed to integrate agricultural portals and provide farmers with customized advisory support. This initiative aims to boost farm productivity and improve decision-making for millions of farmers. The government will also strengthen the fisheries value chain in coastal areas through the development of 500 reservoirs. Animal husbandry is set to receive support via a credit-linked subsidy program to create jobs in rural areas. Furthermore, there is a renewed focus on high-value crops, with dedicated programs for coconut, sandalwood, cashews, and walnuts to enhance production and exports.

Focus on Healthcare, Education, and Tourism

In the healthcare sector, the government will support states in setting up five regional medical hubs, which will include Ayush centres and post-care rehabilitation facilities. To address the need for skilled professionals, a plan to train 1.5 lakh caregivers has been announced. The budget also proposes the establishment of three new All India Institutes of Ayurveda.

On the education front, the government will support the creation of five university townships and establish a new National Institute of Design in East India. To promote digital learning, the Indian Institute of Creative Technologies in Mumbai will be supported to set up labs in 15,000 secondary schools. For tourism, the budget includes plans to develop 15 archaeological sites, including Lothal and Sarnath, and to create ecologically sustainable trekking trails.

Taxation and Financial Sector Reforms

The budget confirmed that the new Income Tax Act, 2025, will come into effect from April 1, 2026. For immediate relief, several indirect tax measures were announced. The customs duty on all dutiable goods imported for personal use has been reduced from 20% to 10%. To make healthcare more affordable, basic customs duty on 17 life-saving drugs has been exempted. The Tax Collected at Source (TCS) rate on overseas tour packages has been cut to 2%, and for education and medical remittances, it has been reduced to 2%. A significant incentive for foreign investment is the tax holiday until 2047 for foreign companies providing cloud services from data centres in India.

Support for MSMEs and Strategic Sectors

To create champion MSMEs, a ₹10,000 crore SME Growth Fund was proposed to incentivize small and medium enterprises based on select criteria. A cadre of 'Corporate Mitras' will be developed in Tier-II and Tier-III towns to help MSMEs with regulatory compliance and access to credit. The defence budget has been increased to ₹7.85 lakh crore for FY27, up from ₹6.81 lakh crore in the previous year, with a capital outlay of ₹2.19 lakh crore for modernization.

Conclusion: A Vision for a Developed India

Prime Minister Narendra Modi described the budget as a "strong foundation" for a developed India by 2047. The announcements reflect a balanced approach, prioritizing capital expenditure to drive long-term growth while maintaining a path of fiscal consolidation. By focusing on strategic sectors like semiconductors, biopharma, and infrastructure, and empowering the rural economy through technology and targeted schemes, the Union Budget 2026-27 sets an ambitious yet pragmatic course for the Indian economy.