Union Budget 2026: FM Sitharaman Announces ₹12.2 Lakh Crore Capex and New Tax Reforms

Finance Minister Nirmala Sitharaman presented her ninth consecutive Union Budget on February 1, 2026, setting a historic milestone in Indian fiscal history. The 83-minute speech outlined a comprehensive economic roadmap built on three core pillars, or 'Kartavyas': accelerating growth, building capabilities, and ensuring inclusive development. The budget emphasizes a transition toward a high-productivity economy through strategic interventions in manufacturing, infrastructure, and urban development.

The government has maintained its focus on capital expenditure as the primary driver of economic momentum. For the financial year 2026-27, the capital expenditure outlay has been increased to ₹12.2 lakh crore, representing a significant jump from the ₹11.2 lakh crore allocated in the previous year. This investment is intended to strengthen private developer confidence and sustain the high growth rate, which currently stands at approximately 7%.

The Three Kartavyas and Six-Point Roadmap

The Finance Minister introduced the budget as the first to be prepared in the 'Kartavya Bhavan,' inspired by three fundamental duties. The first duty is to sustain economic growth by enhancing competitiveness. The second is to fulfill the aspirations of the youth by building their capacity. The third is to ensure that every region and community has access to resources for meaningful participation in India's prosperity.

To deliver on these duties, the government proposed interventions in six strategic areas. These include scaling up manufacturing in frontier sectors, rejuvenating legacy industrial clusters, creating champion MSMEs, delivering a powerful infrastructure push, ensuring long-term energy security, and developing city economic regions. This structured approach aims to build resilience against volatile global dynamics while fostering domestic innovation.

Manufacturing Push: Biopharma SHAKTI and Semiconductors

A central highlight of the manufacturing agenda is the launch of 'Biopharma SHAKTI,' a strategy for health advancement through knowledge, technology, and innovation. With an outlay of ₹10,000 crore over the next five years, the initiative seeks to establish India as a global biopharma hub. The plan includes three new National Institutes of Pharmaceutical Education and Research (NIPERs) and a network of 1,000 accredited clinical trial sites to address the rising burden of non-communicable diseases.

The semiconductor and electronics sectors also received substantial attention. Building on the previous India Semiconductor Mission, the government announced ISM 2.0 to fortify supply chains and produce advanced equipment. Furthermore, the outlay for the Electronics Components Manufacturing Scheme was increased from ₹22,919 crore to ₹40,000 crore to capitalize on the investment momentum seen since April 2025.

Infrastructure and Connectivity Initiatives

The budget proposes a massive expansion of India's transport and industrial corridors. Seven high-speed rail corridors have been identified as 'growth connectors,' linking major urban hubs like Mumbai-Pune and Hyderabad-Bengaluru. Additionally, the government will establish dedicated Rare Earth Corridors in Odisha, Kerala, Andhra Pradesh, and Tamil Nadu to promote the mining and processing of critical minerals, reducing dependence on imports.

MSME Support and Urban Development

Recognizing MSMEs as the engine of growth, the Finance Minister announced a ₹10,000 crore SME Growth Fund to create future industry champions. The Self-Reliant India Fund will also receive a top-up of ₹2,000 crore to provide risk capital to micro-enterprises. To assist with compliance, the government will facilitate 'Corporate Mitras' through professional institutions to provide affordable support to small businesses.

Urban growth will be managed through the development of City Economic Regions (CERs). An allocation of ₹5,000 crore per CER over five years is proposed to implement reform-cum-results based financing. This initiative focuses on Tier II and Tier III cities, transforming them into modern growth centers with improved infrastructure and amenities.

Taxation Reforms and Ease of Living

The new Income Tax Act, 2025, is set to take effect from April 1, 2026, aiming to simplify the tax code and reduce the compliance burden. Significant relief was announced for international travelers and students; the TCS rate on overseas tour packages and remittances for education and medical purposes has been reduced to 2%. Previously, these rates ranged as high as 20% for certain categories.

Agriculture and Social Welfare

For the agricultural sector, the government introduced 'Bharat-VISTAAR,' a multilingual AI tool designed to provide customized advice to farmers by integrating AgriStack and ICAR systems. To empower rural women, 'SHE-Marts' (Self-Help Entrepreneur Marts) will be established to provide market linkages for women-led enterprises. The budget also focuses on mental health with the planning of NIMHANS-2 and the strengthening of emergency trauma care centers across district hospitals.

Market Impact and Fiscal Consolidation

The stock markets reacted with volatility following the announcement of an increase in the Securities Transaction Tax (STT) on Futures and Options (F&O). However, the long-term fiscal outlook remains stable. The government has successfully reduced the fiscal deficit to 4.3% for the upcoming year, staying on the path to reach a debt-to-GDP ratio of 50% by 2030-31. Total expenditure for FY27 is estimated at ₹53.5 lakh crore, supported by net tax receipts of ₹28.7 lakh crore.

Conclusion

Union Budget 2026 reflects a balanced approach between aggressive capital spending and fiscal prudence. By prioritizing strategic sectors like semiconductors and biopharma while simplifying the tax regime, the government aims to solidify India's position as a global manufacturing and services hub. The focus now shifts to the effective implementation of these schemes at the state and local levels to ensure the benefits of growth reach the last mile.