Budget 2026-27: India's Fiscal Blueprint
Finance Minister Nirmala Sitharaman presented the Union Budget 2026-27 on February 1, 2026 — her eighth consecutive budget, a record in Indian parliamentary history. In a budget speech lasting 2 hours and 14 minutes, she unveiled a ₹50.65 lakh crore ($606 billion) expenditure plan that prioritized infrastructure investment, middle-class tax relief, and agricultural support while keeping the fiscal deficit in check at 4.4% of GDP.
The budget's overarching theme — "Viksit Bharat: Building for 2047" — reflects the government's long-term vision of transforming India into a developed nation by the centenary of independence. With India's economy growing at 6.4% in FY2025-26, the budget seeks to accelerate that momentum while addressing structural challenges including rural distress, urban unemployment, and manufacturing competitiveness.
Income Tax: Middle Class Gets Major Relief
The most discussed announcement of the budget was a substantial revision to income tax slabs under the new tax regime, effective April 1, 2026:
- Up to ₹4 lakh: Nil (increased from ₹3 lakh)
- ₹4-8 lakh: 5% (reduced from previous 5% starting at ₹3 lakh)
- ₹8-12 lakh: 10%
- ₹12-16 lakh: 15%
- ₹16-20 lakh: 20%
- ₹20-24 lakh: 25%
- Above ₹24 lakh: 30%
Additionally, the rebate under Section 87A has been raised from ₹7 lakh to ₹12 lakh, meaning individuals earning up to ₹12 lakh annually will pay zero income tax. This is expected to benefit approximately 1.1 crore taxpayers and put ₹1.1 lakh crore back in the hands of the middle class, according to Revenue Secretary Tuhin Kant Pandey.
The standard deduction has been raised from ₹50,000 to ₹75,000, providing additional relief to salaried employees and pensioners. These combined changes represent India's most significant personal income tax reduction since 2017.
Infrastructure: Record ₹11.21 Lakh Crore Capital Expenditure
The budget maintains India's aggressive infrastructure investment trajectory with a capital expenditure allocation of ₹11.21 lakh crore — a 10.1% increase over the FY26 estimates. This represents 3.1% of GDP, among the highest capital expenditure ratios in India's post-liberalisation history.
Roads and Highways
The Ministry of Road Transport and Highways receives ₹2.78 lakh crore, targeting construction of 12,000 km of national highways in FY27. The government announced 37 new expressway projects under Bharatmala Phase 2, including the Delhi-Dehradun Expressway extension and the Patna-Purnea Expressway.
Railways
Indian Railways gets a record ₹2.52 lakh crore capital outlay, with key allocations to:
- 400 new Vande Bharat trains across India by 2027
- Kavach (automatic train collision avoidance system) installation across 5,000 km of high-density routes
- 100% electrification of remaining diesel routes
- Mumbai-Ahmedabad High-Speed Rail corridor — targeting 500 km completion by 2028
Agriculture: PM-Kisan Enhancement and Crop Insurance
Agriculture, which supports approximately 45% of India's workforce, received significant attention. The PM-Kisan Samman Nidhi income support scheme — which provides direct cash transfers to farmers — saw its annual quantum raised from ₹6,000 to ₹8,000 per farmer, benefiting approximately 9.2 crore families at an additional cost of ₹18,400 crore to the exchequer.
The Pradhan Mantri Fasal Bima Yojana (crop insurance) has been revamped with premium subsidies increased significantly, targeting 5 crore farmer enrollments annually. A new ₹1 lakh crore Krishi Fund — managed by NABARD — has been announced to provide low-interest credit to agricultural cooperatives and farmer producer organisations (FPOs).
The Minimum Support Price (MSP) for wheat has been set at ₹2,425 per quintal and for paddy at ₹2,370 per quintal — increases of 5.5% and 5.7% respectively — slightly ahead of food inflation to ensure farm profitability.
Defence and Security
The defence budget has been set at ₹7.34 lakh crore — a 10.9% increase — reflecting continued elevated security expenditure given ongoing border tensions with China and Pakistan. Defence capital expenditure, which funds new weapons procurement, stands at ₹1.65 lakh crore.
A notable shift is the increased allocation for domestic defence procurement, which now constitutes 75% of the capital budget — up from 68% in FY26 — as part of the Aatmanirbhar Bharat (self-reliance) push. Key procurement approvals include the order for 97 additional Tejas Mk-1A fighter jets, medium-range surface-to-air missiles, and advanced submarine systems.
Market Reaction and Economic Outlook
Markets reacted positively to the tax relief measures and continued infrastructure focus. The BSE Sensex closed 1.4% higher on Budget Day, and the NSE Nifty 50 gained 1.7%. Banking and infrastructure stocks led gains, while FMCG stocks benefited from expectations of increased consumer spending due to tax relief.
However, Rating agency Moody's flagged India's fiscal consolidation pace as "gradual," noting the fiscal deficit of 4.4% remains above the government's original medium-term target of 3%. India's total government debt stands at approximately 83% of GDP — elevated by emerging market standards, though primarily domestically financed.
Former RBI Governor and economist Raghuram Rajan commented that the budget "strikes a reasonable balance between growth stimulus and fiscal responsibility," but cautioned that the long-term impact depends on the quality of capital expenditure implementation rather than mere allocation numbers.