| Photo Credit: Satheesh Vellinezhi

Finance Minister Nirmala Sitharaman faced a challenge while framing the Budget for 2026-27. With tax reforms all done in recent times, what was it that she could do new this year? She turned to the future.

Laden with intent, some backed with resource allocations and others not, Sitharaman has attempted to situate the Budget in the emerging matrix of geopolitics, trade disruptions, capital flow volatility and the critical demand of the times: Jobs.

It is interesting that in pursuit of long-term objectives, her trademark focus on fiscal stability has not wavered. The fiscal deficit glide path is on schedule, with the deficit target for the current fiscal met and the next year’s set at 4.3 per cent. The committed reduction in debt-GDP ratio has been adhered to, with the target for 2026-27 set at 55.6 per cent (56.1 per cent this fiscal).

Quality of expenditure has not been lost sight of. Total expenditure at ₹53.47 lakh crore is up 7.70 per cent compared to the Revised Estimate of this fiscal, but effective capital expenditure at ₹17.14 lakh crore (including grants-in-aid to States) is up a whopping 22.12 per cent. Capex by the Centre is now almost a third of its total expenditure. It is another matter, though, that ministries and departments have not been able to spend their allocation. For instance, in 2025-26, effective capital expenditure was 9.3 per cent lower than what was budgeted last year.

Two caveats

While these numbers look good, they’re subject to two caveats, though. First, gross tax revenues are assumed to grow at 8 per cent to ₹44.04 lakh crore compared to the 2025-26 RE, which shows a fall of 4.5 per cent compared to that budgeted last year. Income-tax collections underperformed, possibly due to the personal tax giveaways in last year’s Budget. With salary incomes under pressure, it is brave indeed of the Finance Minister to assume a growth of 11.73 per cent in income-tax over what is projected to be collected this fiscal.

Second, the GDP series on which the Budget has been constructed will be history later this month when the new series growth numbers are released. There is no saying how the numbers will look. If nominal growth is higher than the 10 per cent assumed in the old series, Sitharaman can afford a silent smile, but if it is lower, she might find herself frowning!

Long-term vision

To her credit, Sitharaman has not allowed these near-term worries to cloud her long-term vision. The focus is on sectors such as semiconductors, rare-earth magnets, electronic components, chemicals, biopharmaceuticals, logistics, tourism, and MSMEs. While most of these are statements of intent such as an India Semiconductor Mission 2.0, mining of rare earth minerals in Odisha, Andhra Pradesh, Tamil Nadu and Kerala, and setting up a new dedicated freight corridor from Dankuni to Surat, the Minister has committed ₹10,000 crore over five years for the biopharma scheme and doubled allocation to ₹40,000 crore for the electronics components manufacturing scheme.

For MSMEs, Sitharaman has announced an SME Growth Fund with a capital of ₹10,000 crore and changes in the TReDS scheme that are meant to benefit them. A high-powered committee will be set up with a focus on the services sector to create jobs.

Despite the commitment to fiscal consolidation and the noble statements of intent, the markets were not enthused. They voted with their feet against the Budget, with the BSE Sensex registering the biggest budget-day drop in six years. The index fell close to 2 per cent as investors vented their fury at the increase in the Securities Transaction Tax on futures and options.

Curbing F&O speculation

The increase in STT does not seem to be a revenue-raising measure but one aimed at curbing speculative froth in the markets. At ₹63,670 crore, STT collections were just 1.4 per cent of the gross tax collections in 2025-26. This will rise to ₹73,700 crore in 2026-27 after the latest increase in rates. The worry in the market is that foreign institutional investors, already crowding the exit, will desert the Indian markets en masse. However, the FM has done fair by individual non-promoter investors in recognising buyback income as capital gains, which is 12.5 per cent only.

In sum, this Budget continues on the set path in the basic arithmetic of its construction, but the part to be noted is the vision on several fronts. These now need to be backed with action on the ground, and quickly, too.

Published on February 1, 2026