Union Budget 2026-27

Growth Continuity with Fiscal Discipline; Marginal Financial Market Headwinds

• The Union Budget 2026-27 has been framed in an environment of resilient domestic growth, moderating inflation, and a still-uncertain global backdrop marked by geopolitical tensions and tighter global financial conditions. The government has used this budget to pivot from pure fiscal consolidation towards long-term capacity building, while keeping the fiscal deficit on a credible glide path and reinforcing macro stability.

Big Picture: Growth with Discipline

• Capex-led growth: Capital expenditure is budgeted at about INR 12.2 lakh crore for FY27, 9% higher than the revised estimate of INR11 lakh crore in FY26, extending the multi-year public investment push in roads, railways, power, and urban infrastructure.
• Fiscal consolidation: Fiscal deficit is pegged at 4.3% of GDP for FY27 versus 4.4% in FY26, signalling continued adherence to the sub -4.5% target and supporting India’s sovereign credibility.
• Macro stability: Nominal GDP is projected at INR 393 lakh crore in FY27, implying 10% growth over FY26, with gross tax revenue growth estimated at 8%.

The overall stance remains growth-supportive but fiscally prudent, with public capex acting as the key lever to crowd-in private investment and sustain medium-term productivity gains.

Key Budget Takeaways

1. Capex Thrust Sustained

• Capex at INR 12.2 lakh crore continues the strong emphasis on public investment, with focus sectors including roads, railways, power, urban development, housing and water.
• Roads (including NHAI), railways, PMAY (urban and rural), urban transport (metros), and Jal Jeevan Mission see meaningful allocation increases, supporting multi-year demand for cement, steel, engineering and construction services.

2. Fiscal Math and Borrowings

• Gross tax revenue: Budgeted at INR 44.0 lakh crore in FY27 vs INR 40.8 lakh crore in FY26 RE; direct taxes are seen rising to INR 27.0 lakh crore, with personal income tax at INR 14.66 lakh crore and corporate tax at INR 12.31 lakh crore.
• Indirect taxes: Budgeted modest growth, with GST collections slightly lower than FY26 RE due to the impact of rate cuts, offset by higher excise and customs.
• Borrowings: Gross market borrowing is set at around INR 17 lakh crore, about 9% higher than FY26.

The projections appear realistic, limiting the risk of mid-year slippages and helping keep bond yields anchored.

3. Manufacturing, Strategic Industries and New-Economy Push

• India Semiconductor Mission 2.0: Outlay raised to INR 40,000 crore to build a full-stack domestic semiconductor ecosystem, including design, fabrication, and equipment manufacturing.
• BioPharma SHAKTI: A INR 10,000 crore outlay over five years to strengthen biologics and biosimilars, upgrade NIPERs and create over 1,000 accredited clinical trial sites, shifting from volume-led generics to a value-led biopharma model.
• EMS and electronics: Enhanced support for electronic manufacturing services and critical components, with customs duty exemptions on capital goods for EV batteries, electronics and critical minerals processing.
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• Rare Earth Corridors: Dedicated corridors in Odisha, Kerala, Andhra Pradesh and Tamil Nadu to promote mining, processing and manufacturing of critical minerals and permanent magnets.

These measures converge around supply-chain resilience, high-tech manufacturing and strategic autonomy.

4. Digital Infrastructure, Cloud and Data Centres

• Tax holiday till 2047 for foreign companies providing global cloud services using data centres located in India, provided Indian customers are served through an Indian reseller.
• Unified IT services category (software, ITES, KPO, R&D) with a 15.5% safe-harbour margin and higher eligibility threshold (from INR 300 crore to INR 2,000 crore), plus a fast-tracked APA process with automated approvals.

This framework reduces tax friction for IT and cloud players and positions India as a long-term global digital infrastructure hub.

5. STT Hike and Financial Market Impact

• STT on futures raised from 0.02% to 0.05%.
• STT on options premium and exercise raised to 0.15% (from 0.1% and 0.125% respectively).

This is a marginal negative for brokers, exchanges and high-frequency/ derivatives participants but is unlikely to materially affect long-term investors.

Macro and Fiscal Accounts: Core Numbers

Revenue Side

• Gross tax revenue: INR 44.0 lakh crore (FY27 BE) vs INR 40.8 lakh crore (FY26 RE).
• Net tax revenue: INR 28.67 lakh crore (after devolution to states).
• Non-tax revenue (interest, dividends, etc.): INR 6.66 lakh crore, including strong RBI and PSU dividend assumptions (INR 3.91 lakh crore total dividends).
• Disinvestment target: Raised to INR 80,000 crore for FY27 from INR 33,837 crore in FY26 RE.

Expenditure Side

• Total expenditure: INR 53.47 lakh crore, up 7.7% over FY26 RE.
• Interest payments: Rise to INR 14.04 lakh crore (10% YoY).
• Key functional heads with notable increases:
  • Education: +14%
  • Health: +11%
  • Energy: +26%
  • Rural development: +28%
  • Scientific development: +51%
  • Urban development: +50% vs FY26 RE.

Subsidies and Transfers

• Food subsidy: Flat at INR 2.28 lakh crore in FY26 RE and INR 2.28 lakh crore in FY27 BE.
• Fertiliser subsidy: Reduced from INR 1.86 lakh crore (RE) to INR 1.71 lakh crore (BE), reflecting normalization in input prices.
• Petroleum subsidy: Lower, largely confined to LPG support.

Overall subsidy outgo moderates as pandemic-era and commodity-driven pressures taper, freeing space for growth-oriented spending.

Infrastructure and Government Schemes

Infrastructure Outlay

• Roads and Highways: Total roads allocation rises to INR 3.10 lakh crore; NHAI’s allocation climbs to INR 1.87 lakh crore (+10% YoY).
• Railways: Allocation increased 10% to INR 2.81 lakh crore, with emphasis on seven new high-speed rail corridors and multimodal freight connectivity.
• Power: Outlay jumps 39% to INR 29,997 crore, supporting transmission, renewables and grid upgradation.
• Urban development: INR 85,522 crore (+50% vs FY26 RE), including Smart Cities/AMRUT (INR 8,000 crore) and metro projects (INR 28,695 crore).
• Housing (PMAY): Combined allocation of INR 73,542 crore, with sharp rises in both urban and rural components.
• Water and sanitation: Jal Jeevan Mission at INR 67,670 crore; Swachh Bharat allocation at INR 9,692 crore (+21%).

Social and Rural Schemes

• PMAY-Rural up significantly (INR 54,917 crore vs INR 32,500 crore in FY26 RE); PMAY-Urban also sharply higher.
• Jal Jeevan Mission shows almost 4x jump versus FY26 RE, supporting pipe, steel, and construction demand.
• Rural road (PMGSY) outlay restored to INR 19,000 crore, signalling renewed thrust on rural connectivity.

Sectoral Snapshot: Winners, Losers and Market View

Pharma & Healthcare – Neutral to Positive

• Key measures: BioPharma SHAKTI (INR 10,000 crore), customs duty exemption on 17 life-saving cancer drugs and select rare-disease therapies, allied health workforce creation, PPP-based regional healthcare hubs and trauma-care expansion.
• Market impact: Positive for biosimilar-focused and specialty players (e.g., Biocon, Dr Reddy’s) and for hospital chains with strong PPP and medical tourism exposure (e.g., Max Healthcare, Medanta, Narayana).

Banks and NBFCs – Neutral

• Banking Committee for Viksit Bharat to review structure, governance and risk management.
• Capex-led growth supports credit demand; restructuring of power financiers (REC/PFC) aims at scale and efficiency.
• Net positive for large banks (SBI, BoB, HDFC Bank, ICICI Bank) and power-finance NBFCs (REC, PFC).

Diversified Financials – Marginal Negative

• Higher STT on futures and options weighs on exchanges and retail-focused brokers, potentially dampening F&O volumes.

Cement and Building Materials – Positive

• Broad-based infra and housing capex should support cement consumption; road and housing allocations are clear volume drivers.

Information Technology – Positive

• Cloud tax holiday, safe-harbour rationalization and APA fast-tracking lower regulatory friction and enhance tax certainty for IT and data-centre players.

Infra, Metals, Utilities – Positive Bias

• Elevated public capex, new freight corridors, and urban-infra push support order books for infra companies, while housing, railways and water schemes underpin steel and pipe demand.
• Renewables, nuclear and storage-focused duty exemptions and viability-gap funding are supportive for power and energy-transition plays.

Overall Assessment

• Union Budget 2026-27 keeps India on a growth-with-discipline path: public capex is scaled up, fiscal consolidation remains credible, and structural reforms in manufacturing, digital infrastructure and energy transition are deepened.
• While the STT hike and buyback-related changes create marginal headwinds for parts of the financial market, the larger macro-fiscal and infrastructure framework remains constructive for long-term equity investors

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