Union Budget 2026: Key Sector Focus and Tax Expectations

Finance Minister Nirmala Sitharaman is scheduled to present the Union Budget for the fiscal year 2026-27 on February 1, 2026. This presentation marks her ninth consecutive budget, a significant record in India's parliamentary history. The budget will be unveiled amidst a backdrop of global economic uncertainty and geopolitical tensions, making the government's policy choices critical for sustaining India's growth momentum. The speech is expected to commence around 11 AM in Parliament, outlining the government's financial roadmap and development priorities for the upcoming year.

Economic Backdrop: Growth Amidst Global Headwinds

The stage for the budget was set by the Economic Survey, tabled in Parliament on January 29. The survey projects India's economy to grow between 6.8% and 7.2% in the fiscal year 2027, describing the nation as an "oasis of macro stability." This optimistic outlook is supported by strong domestic demand and moderate inflation. However, the government faces the challenge of balancing continued public spending to fuel growth with the need for fiscal prudence. The Economic Survey noted that the fiscal deficit is below the set target, a commendable achievement that provides some room for targeted spending.

Spotlight on Key Sectors

Industry expectations are largely centered on a continued push for domestic manufacturing and infrastructure development. The government is likely to maintain its focus on several priority areas to boost self-reliance and economic resilience.

• Manufacturing and Exports: Following the Chief Economic Adviser's emphasis on manufacturing and exports, industry bodies are anticipating measures that support these sectors. The 'Make in India' initiative is expected to receive further impetus, particularly in electronics, semiconductors, renewable energy, and specialty chemicals.
• Defence: Given the changing nature of global conflicts, there is a strong call for increased capital outlay in the defence sector. Recommendations include higher allocations for defence research and development to foster indigenous capabilities.
• Infrastructure: Continued investment in infrastructure is a widely held expectation. The government's focus on capital expenditure (capex) is likely to persist, with reports suggesting that central government capex could cross ₹12 lakh crore in FY27. This spending is crucial for reducing the cost of doing business and creating long-term assets.
• MSMEs and Renewable Energy: The Micro, Small, and Medium Enterprises (MSME) sector, a key driver of employment, is also in the spotlight, along with renewable energy, as India pursues its green energy goals.

Taxation: Hopes of the Middle Class and Industry

While expectations for major tax overhauls are measured, there are specific areas where relief and rationalization are sought.

• Personal Income Tax: The middle class is hopeful for some relief, potentially through an increase in the standard deduction under the Income Tax Act. The government may also introduce further incentives to encourage more taxpayers to shift to the new, simplified income tax regime, which offers lower rates but fewer exemptions.
• Corporate and Indirect Taxes: Industry stakeholders are looking for clarity and simplification. Key demands include the rationalization of Tax Deducted at Source (TDS) categories into fewer slabs and a comprehensive overhaul of the customs framework. An amnesty scheme to resolve long-standing customs disputes, which lock up significant capital, is also on the wishlist to improve the ease of doing business.

The Budget Formulation Process

The creation of the Union Budget is an extensive and confidential process that begins months before its presentation. The Finance Ministry issues circulars to all ministries and departments, which then submit their expenditure and receipt estimates. These figures undergo rigorous review and inter-ministerial consultations. Once the allocations are finalized and new welfare schemes are drafted, the budget documents move to the printing stage. This phase is marked by the traditional 'halwa ceremony,' after which officials involved in the budget preparation enter a 'lock-in' period in North Block to prevent any information leaks.

A Historic Sunday Presentation

The Union Budget 2026 will be presented on a Sunday, a rare occurrence in India's history. The last time a budget was presented on a Sunday was in 1999. The Budget Session of Parliament, which began on January 28, will continue until April 2, with a recess in between. Markets will remain open for regular trading hours on Budget Day, allowing investors to react to the announcements in real-time.

Summary of Key Expectations

Conclusion: A Balancing Act

As Finance Minister Nirmala Sitharaman prepares to deliver her ninth budget, the overarching theme is expected to be one of continuity and stability. The government is likely to focus on strengthening the foundations of the economy through targeted investments in manufacturing, infrastructure, and defence, rather than announcing populist measures. The budget will be a critical policy document that balances the need for sustained economic growth with the imperative of fiscal discipline, all while navigating a complex global environment. The nation will be watching closely as the government lays out its economic vision for the year ahead.