Growth, stability over populism

New Delhi: Finance Minister Nirmala Sitharaman on Sunday presented the Union Budget for 2026-27 with total expenditure pegged at Rs 53.5 lakh crore, outlining a medium-term growth framework that prioritises manufacturing expansion, infrastructure investment, fiscal consolidation and services-led employment, even as global trade, capital flows and supply chains face sustained pressure. The Budget refrained from populist measures despite upcoming elections in key states, signalling continuity in policy and public investment. It laid out a sharp rise in public infrastructure spending, a decisive push to attract global artificial intelligence-led data centre investments, a substantial increase in defence outlays, and relief for patients through customs duty exemption on 17 cancer drugs.

Sitharaman, presenting her ninth consecutive Budget in the Lok Sabha, proposed total expenditure of Rs 53.5 lakh crore for the coming fiscal year, positioning the Budget as a medium-term blueprint for sustaining growth while navigating geopolitical fragmentation, volatile capital flows and tightening global financial conditions.

Capital expenditure has been raised to Rs 12.2 lakh crore for 2026-27, up from Rs 11.2 lakh crore in the current fiscal and more than four times the Rs 3.08 lakh crore spent in 2018-19. Defence allocation has been increased to Rs 7.85 lakh crore, with capital modernisation crossing Rs 2 lakh crore for the first time, reflecting heightened security requirements and a renewed focus on domestic defence manufacturing.

In parallel, the Budget announced a waiver of customs duty on 17 cancer drugs, along with medicines and food for special medical needs for seven rare diseases, as part of a broader rationalisation of the customs regime that also includes easing baggage rules and cutting duty on personal imports to 10 per cent.

The Budget introduced a structured three-Kartavya framework to guide policy action. Kartavya One focuses on accelerating economic growth by enhancing productivity, competitiveness and resilience amid global volatility. Kartavya Two aims to build capacities of people to fulfil aspirations and become active participants in economic progress. Kartavya Three seeks to ensure universal access to resources, amenities and opportunities across regions and social groups. “This three-part approach aims to strengthen inclusivity and resilience, benefiting farmers, youth, women, disadvantaged groups and every region through sustained reform momentum,” Sitharaman said.

A major pillar under the first Kartavya is the continued expansion of infrastructure. Seven high-speed rail corridors have been proposed as growth connectors across regions. Railways and road transport together accounted for more than half of the Centre’s capital expenditure in the previous fiscal, and remain key drivers of public investment. Twenty new national waterways will be developed over the next five years, while a new East Coast Development Corridor has been proposed to drive industrial and logistics growth.

Manufacturing will be scaled up across seven strategic sectors: pharmaceuticals, semiconductors, rare earth magnets, chemicals, capital goods, textiles and sports goods. The government announced a Rs 10,000 crore investment over five years to build India into a biopharma manufacturing hub under the ‘Biopharma Shakti’ initiative, including the creation of a network of 1,000 accredited clinical trial sites.

Electronics manufacturing received a major boost, with the outlay doubled to Rs 40,000 crore following the expansion of smartphone production. A second phase of the India Semiconductor Mission has been launched to deepen domestic supply chains. A Rs 10,000 crore container manufacturing scheme and a plan to revive 200 legacy industrial clusters through infrastructure and technology upgrades were also announced.

To support energy transition and strategic manufacturing, rare earth corridors will be established in Odisha, Andhra Pradesh, Kerala and Tamil Nadu. Customs duty exemptions will apply to capital goods used in critical mineral processing, battery energy storage systems, lithium-ion cells, solar glass inputs and biogas-blended CNG. A Rs 20,000 crore carbon capture, utilisation and storage programme has been proposed to support decarbonisation of power, steel and cement, while customs duty exemptions for nuclear power projects have been extended till 2035. A major tax announcement aimed at attracting global technology investment is a 20-year tax holiday, extending till 2047, for foreign companies providing global cloud services from data centres located in India. The government also offered a 15 per cent safe harbour margin on data centre services and raised the safe harbour threshold for IT services to Rs 2,000 crore from Rs 300 crore, merging IT services into a single category.

These measures are intended to provide tax certainty to global cloud players such as Google, Microsoft and Amazon Web Services, which together committed about $40 billion in investments in India in 2025.

On the fiscal front, the government reiterated its consolidation path. The fiscal deficit for 2026-27 is estimated at 4.3 per cent of GDP, marginally lower than 4.4 per cent in the current year. The debt-to-GDP ratio is projected to decline to 55.6 per cent from 56.1 per cent. Gross market borrowing is pegged at Rs 17.2 lakh crore. States will receive Rs 1.4 lakh crore as Finance Commission grants. Subsidy expenditure on food, fertiliser and fuel has been pegged 4.47 per cent lower at Rs 4,10,495 crore for 2026-27, compared with a revised estimate of Rs 4,29,735 crore in the current fiscal. Food subsidy is estimated at Rs 2,27,629 crore, fertiliser subsidy at Rs 1,70,805 crore and petroleum subsidy at Rs 12,085 crore. Free ration distribution under the Pradhan Mantri Garib Kalyan Anna Yojana will continue to cover more than 81 crore beneficiaries.

There were no changes to personal income tax slabs. However, return filing timelines have been extended. Individuals using ITR-1 and ITR-2 can file returns till July 31, while non-audit business cases and trusts can file till August 31. Returns can be updated even after reassessment proceedings, subject to payment of a nominal fee. The prosecution framework under the Income Tax Act will be rationalised, and the pre-deposit requirement for tax appeals has been reduced to 10 per cent from 20 per cent.

Corporate tax measures aim to accelerate migration to the new regime. Companies opting for the new regime will be allowed to set off accumulated Minimum Alternate Tax credit capped at 25 per cent of annual tax liability. From April 1, 2026, MAT will become a final tax with no credit available for set-off. Tax on share buybacks will now be treated as capital gains in the hands of all shareholders. Securities transaction tax on equity derivatives has been increased, with futures STT raised to 0.05 per cent from 0.02 per cent and options STT to 0.15 per cent from 0.01 per cent. Equity markets reacted sharply, with benchmark indices falling up to 2 per cent during the special Budget-day trading session before recovering part of the losses. Defending the move later, Sitharaman said the increase was intended to discourage speculative trading by small investors.

Foreign investment norms were liberalised, with the individual investment limit for Persons Resident Outside India raised to 10 per cent from 5 per cent and the aggregate limit increased to 24 per cent from 10 per cent. Foreign investors will also be allowed to buy Indian stocks directly. A comprehensive review of the foreign exchange management framework has been announced, along with a market-making framework to deepen the corporate bond market.

Agriculture and allied sectors received targeted support, including initiatives to develop 500 reservoirs, credit-linked subsidies for animal husbandry, and dedicated programmes for cashew and cocoa. Fish catch by Indian vessels on the high seas will be exempt from customs duty. The Budget noted that 25 crore people have exited multidimensional poverty over the past decade.

Tourism and services were identified as major employment drivers. Proposals include eco-friendly mountain trails in Himachal Pradesh, Uttarakhand and Jammu and Kashmir, development of 15 archaeological sites, training of 1.5 lakh caregivers, skilling of tourist guides, and creation of hubs for medical value tourism. A National Institute of Hospitality will be set up, and tourism infrastructure will be expanded in Tier 2 and Tier 3 cities.

Education initiatives include a focus on STEM education for girl students, while healthcare proposals cover AYUSH medical hubs, diagnostics infrastructure and post-care rehabilitation. A committee will examine the impact of technologies such as artificial intelligence on the services sector and identify avenues to raise India’s share in global services exports to 10 per cent by 2047.

Summing up the broader context, Sitharaman said, “Today, we face an external environment in which trade and multilateralism are imperilled and access to resources and supply chains are disrupted. New technologies are transforming production systems while sharply increasing demands on water, energy and critical minerals.”

Prime Minister Narendra Modi described the Budget as historic, saying it reflected the aspirations of 140 crore Indians and laid a clear roadmap for Viksit Bharat by 2047. “This Budget is the foundation for our journey towards a Viksit Bharat by 2047. This year’s Budget will give India’s reform express new energy and new momentum,” he said.