Budget 2026: Sitharaman to Prioritise Growth and Reforms in 9th Union Budget

Introduction

Finance Minister Nirmala Sitharaman is set to present the Union Budget for the fiscal year 2026-27 on February 1, 2026. This marks her ninth consecutive budget, a record-setting presentation that comes at a critical juncture for the Indian economy. While domestic growth remains robust, the budget is being formulated against a backdrop of significant global headwinds, including persistent geopolitical uncertainties and punitive US tariffs. The government's financial roadmap is expected to focus on sustaining economic momentum through structural reforms and targeted spending while adhering to a path of fiscal consolidation.

Economic Survey Sets an Optimistic Tone

The Economic Survey, tabled in Parliament on January 29, painted a positive picture of India's economic health. The country is projected to close the current financial year (FY26) with a strong GDP growth rate of 7.4%. The survey highlighted India's resilience, noting that the economy is poised to surpass the $1 trillion mark. A key achievement has been the taming of inflation, with average headline CPI inflation falling to 1.7% between April and December 2025. This combination of high growth and low inflation has been described by the Reserve Bank of India as a "Goldilocks" scenario, providing a stable foundation for future policies. For the upcoming fiscal year 2026-27, growth is projected to be in the range of 6.8% to 7.2%.

The Fiscal Consolidation Challenge

Despite the strong economic performance, the Finance Minister faces the challenge of balancing growth imperatives with fiscal discipline. The government is expected to continue on its path of fiscal consolidation, aiming for a fiscal deficit target of 4.2% of GDP for FY27, a slight reduction from the current year's target of 4.4%. This commitment is crucial for maintaining macroeconomic stability and investor confidence. However, this fiscal prudence limits the scope for expansive spending. Gross market borrowings are projected to rise to between ₹16 lakh crore and ₹16.8 lakh crore, up from ₹14.6 lakh crore this year, to fund the government's expenditure.

Focus on Capital Expenditure and Infrastructure

A central pillar of the government's growth strategy is expected to be a continued push in capital expenditure (capex). The budget is likely to increase the allocation for capex to around ₹12 lakh crore for FY27, up from ₹11.2 lakh crore in the current fiscal. This investment, primarily directed towards infrastructure projects like railways and highways, is intended to create assets, generate employment, and "crowd-in" private investment, which has remained relatively muted. The sustained focus on public spending is seen as essential for driving long-term economic capacity.

Key Budgetary Figures at a Glance

The 'Reform Express' Agenda

This year's budget is anticipated to place a strong emphasis on structural reforms, internally dubbed the "Reform Express." The focus will be on measures that improve the ease of doing business, simplify regulations, and enhance the competitiveness of Indian industries. A significant overhaul of the customs duty structure is expected, aimed at rationalizing tariff slabs and reducing compliance burdens. This move is critical as India negotiates new free trade agreements (FTAs) and seeks to integrate more deeply into global value chains. Another key proposal may involve merging schemes like Special Economic Zones (SEZs) and Export Oriented Units (EOUs) into a unified framework to create a more efficient ecosystem for manufacturing and exports.

Taxation: Stability Over Relief

While salaried individuals and the middle class often have high expectations for tax relief, significant changes to personal income tax slabs are unlikely in this budget. The government provided substantial relief in the previous budget, and recent GST rate cuts have already helped ease consumer costs. The revenue impact of the 2025 tax cuts, estimated at ₹1.5 lakh crore annually, constrains the government's ability to offer further concessions. However, industry bodies like the PHD Chamber of Commerce and Industry (PHDCCI) have proposed a rationalization of tax slabs to boost consumption and improve compliance, a suggestion the Finance Minister may consider in the long term.

Sectoral Priorities: Defence, Jobs, and Manufacturing

The budget is expected to address several key sectors. In light of geopolitical tensions, defence spending is projected to see a significant increase of around 20%, with a focus on modernizing the armed forces and promoting indigenous manufacturing. Job creation remains a top priority, with policy measures likely aimed at supporting labour-intensive sectors and MSMEs. The 'Make in India' and 'Atmanirbhar Bharat' initiatives will continue to be central, with potential enhancements to Production Linked Incentive (PLI) schemes to attract further investment in domestic manufacturing.

Conclusion: A Balancing Act for Sustainable Growth

The Union Budget 2026-27 is poised to be a carefully crafted financial plan that balances multiple objectives. Finance Minister Nirmala Sitharaman's ninth budget will likely navigate the path between stimulating growth through strategic investments and reforms, while maintaining a firm grip on the fiscal deficit. The key message will be one of stability, predictability, and a continued commitment to transforming India into a globally competitive manufacturing and export hub. All eyes will be on her speech at 11 am to see the detailed roadmap for the Indian economy for the year ahead.