New Delhi, Jan 31: Finance Minister Nirmala Sitharaman will on February 1 present her ninth straight Budget, which is expected to unveil measures to sustain growth momentum, maintain fiscal discipline, and contain reforms that could buffer the economy from global trade frictions, including US tariffs.
The presentation of the Budget for April 2026 to March 2027 fiscal (2026-27) will be on Sunday, a first in independent India’s history.
Sitharaman’s sweeping income tax and GST cuts, together with spending on infrastructure and the RBI’s interest rate reductions, have so far helped the Indian economy withstand the punitive 50 per cent tariff US President Donald Trump has imposed on Indian goods. But now, she has to come up with measures to sustain the momentum.
The FY27 Budget comes against a complex backdrop. While domestic demand has held up and inflation has moderated from recent highs, global uncertainties – including geopolitical tensions, volatile commodity prices and uneven monetary easing by major central banks – continue to cloud the outlook. At home, the government faces pressure to boost consumption, accelerate job creation and step up capital spending, while keeping the fiscal deficit on a downward path.
However, the tax cuts have nibbled into government revenue, limiting her options to support the economy in the new Budget.
Her biggest challenge will be to find a new growth driver, particularly against the backdrop of a global economy ravaged by heightened uncertainty and fragmentation, financial markets on a precipice, and global commodity prices on a continued uptrend.
Sitharaman, economists said, also faces the difficult task of restoring investor confidence in the near term, as uncertainty over India’s trade talks with the US has unsettled financial markets, with foreign investors continuing to sell Indian equities and pushing the rupee to a record low.
Some believe she may use the proven cash cow – petrol and diesel – to shore up revenues. Availing of a limited window available before international oil prices boil, the minister may raise excise duty on the two auto fuels. The duty hike is expected not to be passed on to consumers, but adjusted against the retail price cut that was warranted when global oil prices fell last year.
She may focus on simplifying regulations and pushing structural reforms to attract domestic and foreign investment.
Despite the tight purse strings, she is not expected to cut spending and may include new measures for the poll-bound states — West Bengal, Tamil Nadu, Kerala and Assam. Some schemes may be re-packaged.
CAPEX PUSH LIKELY TO CONTINUE
Capital expenditure is expected to remain the central pillar of the budget. Over the past few years, the government has sharply increased spending on roads, railways, defence manufacturing, urban infrastructure and logistics to crowd in private investment.
For FY27, economists expect another meaningful rise in capex, though at a more measured pace compared to the post-pandemic surge. Railways, renewable energy, power transmission, defence and urban transport are seen as priority areas, with continued support for state-level infrastructure through interest-free loans.
TAX STABILITY OVER BIG GIVEAWAYS
On the tax front, major changes are considered unlikely. The government has repeatedly signalled a preference for stability and predictability, especially in direct taxes. Any tweaks to personal income tax are expected to be incremental, potentially aimed at easing the burden on the middle class to support consumption.
Corporate tax rates are also likely to remain unchanged, with the focus instead on improving compliance and widening the tax base through digitisation and data-driven enforcement.
JOBS, MANUFACTURING & MSME
Job creation is expected to feature prominently, with possible incentives linked to labour-intensive manufacturing, skilling and apprenticeships.
Schemes supporting micro, small and medium enterprises (MSMEs), which have faced margin pressures from high input costs and tight credit conditions, could see enhanced allocations or credit-guarantee support.
There may also be refinements to production-linked incentive (PLI) schemes as the government assesses their impact on manufacturing capacity, exports and employment.
GREEN TRANSITION & ENERGY SECURITY
With India pushing ahead on its energy-transition goals, the FY27 Budget is expected to strengthen support for renewable energy, green hydrogen, battery storage and electric mobility. Measures to enhance domestic manufacturing of clean-energy equipment and reduce import dependence are also likely.
At the same time, allocations for oil and gas infrastructure and strategic reserves could be maintained to address energy-security concerns amid global volatility.
POLITICAL UNDERTONES
Though not an election year, the Budget FY27 will be closely read for its political signals ahead of key state polls. Balancing welfare spending with fiscal prudence will be a delicate task, especially amid calls for higher rural support and targeted subsidies.
Overall, Sitharaman’s FY27 Budget is expected to prioritise continuity over surprise, reinforcing the government’s long-term growth strategy while navigating near-term economic risks. Markets will look for reassurance that India can sustain high growth without compromising macroeconomic stability.
According to economists at SBI Research, the Budget comes against the domino effects of a new emerging order of realpolitik, still largely opaque, yet frightening. A bigger concern is if crude oil breaks free from the artificially managed supply glut and joins the bandwagon, even for a short while.
“We expect modest growth in tax revenue and flat growth in non-tax revenue,” they said. “Government capex may cross Rs 12 lakh crore in FY27, a YoY growth of around 10 per cent.”
Net tax receipts are on course to miss budgeted estimates due to the GST rate rationalisation measures, direct tax relief, and lower tax buoyancy on the back of weaker nominal growth, said Radhik Rao, Senior Economist, DBS Bank.
“We expect Budget measures to align with the economy’s strategic ambitions, including on manufacturing and social welfare.”
