Finance Minister Nirmala Sitharaman’s ninth Budget exudes a sense of quiet confidence — both political and economic. In its third term and on a political winning streak after the 2024 general elections, the Modi’s government’s Budget for FY27 is remarkably free of overt populist intent or rhetoric. Of course, there are infrastructure, logistics (railways and waterways) and farm-sector related schemes for regions that are headed for polls soon, but they do not reveal themselves as ‘packages’ for a particular State. On the economy, the Budget has backed growth to continue on its own steam.
After having given a consumption boost last year through tax breaks (and with corporate tax cuts having come into force before the pandemic), there are no blunt investment (or consumption) incentives on offer for the short term. So, this is a Budget for the medium to long term. It pushes for strategic autonomy, export promotion, ease of doing business and digital superiority — responding to a world order where trade and investment are being weaponised by the day. An investment focus on critical minerals, semi-conductors, electronic components manufacturing and AI-related technologies forms the kernel of the Budget. Rare earth corridors have been envisaged in Kerala, Tamil Nadu, Andhra Pradesh and Odisha, while expenditure on critical minerals exploration will be amortised over five years. Another important strategic investment pertains to a scheme for container manufacturing with an outlay of ₹10,000 crore. The focus on biopharma, with an outlay of ₹10,000 crore over five years is aimed at creating a global hub. There is surprising attention to detail as well. For instance, a ₹200 crore scheme has been announced for making lifts, fire-fighting equipment and tunnel-boring machines, for which we are import-dependent. Customs duty exemptions or rebates for critical areas include capital goods for manufacturing lithium-ion batteries, monazite for EVs and raw materials for making defence aircraft parts. A dominant investment thrust pertains to the safe harbour benefit for the IT-AI universe. Meanwhile, customs duties have also been aligned with a view to trade pacts of the present and future.
The fiscal architecture of the Budget is credible and conservative. It follows the path of recent years of reconciling fiscal consolidation with an increase in quality spending through capital expenditure. Nominal GDP growth for FY27 has been estimated at 10 per cent, which is plausible in view of the anticipated rise in inflation from very low levels this fiscal. This, in turn, suppressed nominal GDP growth, and with it direct tax collections. Gross tax collections growth has been pegged at 8 per cent (₹44 lakh crore) for FY27, against 10.8 per cent last year. Notably, direct tax collections fell short by ₹1 lakh crore this fiscal, with respect to the budgeted ₹25.2 lakh crore. GST collections are expected to fall in FY27, while income tax and corporate tax collections are expected to grow above 11 per cent. Matching the modest tax outlook is an expenditure increase of 7.7 per cent to ₹5.35 lakh crore for FY27 (7.4 per cent this year, which was undershot). However, budgeted capital expenditure is up nearly 11 per cent to ₹12.2 lakh crore. A fiscal deficit of 4.3 per cent of GDP in FY27 will be financed by net market borrowings of ₹11.7 lakh crore, similar to the current year’s level, so there is no real reason for the bond markets to be alarmed. While the numbers do hold, there are certain nagging worries, such as climbing interest payments (₹14 lakh crore in FY27, against ₹12.7 lakh crore this fiscal), and its rising share in revenue receipts. Amidst this debt overhang, fiscal discipline is unavoidable.
If the Budget has not enthused markets, it should not be a concern. The higher imposition of securities transaction tax as well as the correction in buyback rules to plug anomalies are valid steps. In its attempt to woo overseas NRI investors, there is an attempt to offset fickleness in capital flows. Indeed, there is a need to address the BoP concerns arising out of a savings-investment gap. Overall, the Budget ticks the right boxes. But a focus on grassroots infrastructure in education and health is missing, even as it has focused on high-end research. The former is a pre-requisite for the latter to click
Published on February 1, 2026