Budget 2026: STT Hike Aims to Curb High-Risk Speculation in F&O Markets
Finance Minister Nirmala Sitharaman has clarified that the increase in the securities transaction tax (STT) announced in the Union Budget 2026 is specifically designed to discourage high-risk speculation by retail traders in the futures and options (F&O) segment. This move, she emphasized, will not impact other market transactions and is a response to growing concerns over substantial losses faced by small investors.
Addressing Retail Investor Losses
"We receive numerous messages from individuals highlighting the significant losses incurred by those without substantial disposable income. Therefore, this nominal STT hike is purely intended to deter excessive speculation. The government cannot stand idly by while people suffer such massive financial setbacks," Sitharaman stated during a post-budget press conference.
The proposal to marginally raise STT on certain F&O segments initially unsettled the markets, leading to a 1.9% decline in the BSE Sensex, which dropped by 1,547 points. Revenue Secretary Arvind Shrivastava supported the decision, noting that the high volume of F&O transactions often involves heavy speculation, resulting in losses for retail and unsophisticated investors.
Systemic Risks and Regulatory Measures
"This adjustment aims to manage systemic risks within the derivatives market. Even after the increase, STT rates will remain modest relative to transaction volumes. The market regulator can further explore additional measures to regulate the market effectively," Shrivastava explained.
A July 2025 study by the Securities and Exchange Board of India (Sebi) estimated that retail traders in the F&O segment suffered net losses of Rs 1.05 trillion in FY25, with approximately 91% of retail traders experiencing losses during the year. Sebi has already implemented steps to curb speculation, aligning with the government's latest initiative.
Fiscal Deficit Target Set at 4.3% for 2026-27
In response to queries about the gradual approach to fiscal consolidation, Sitharaman emphasized that abrupt changes could adversely affect various economic sectors. The government has set the fiscal deficit target for 2026-27 at 4.3% of GDP, down from 4.4% in the current financial year.
"We must proceed gradually while maintaining the deficit within a prudent band. This demonstrates our commitment to responsible fiscal management and ensures the economy grows at a steady pace. The target is both realistic and accountable," the Finance Minister asserted.
Debt-to-GDP Ratio and Fiscal Strategy
Sitharaman also announced that India's debt-to-GDP ratio is projected to decrease to 55.6% in FY27 from 56.1% this year. Economic Affairs Secretary Anuradha Thakur elaborated on the fiscal framework, stating, "Under the new fiscal anchor, the glide path will continue, with the fiscal deficit serving as the operational target to achieve the desired debt-to-GDP ratio. Both metrics work in tandem to ensure fiscal stability."
Disinvestment Target Pegged at Rs 80,000 Crore
The government has outlined an ambitious disinvestment target of Rs 80,000 crore for FY27, which is 2.4 times the revised estimate of Rs 33,800 crore for the current year. Sitharaman confirmed that all disinvestment proposals approved by the Cabinet will proceed as planned.
Arunish Chawla, Secretary of the Department of Investment and Public Asset Management (DIPAM), highlighted a composite strategy integrating disinvestment and closure processes. "Half of the 50 in-principle approvals for disinvestment and closure have already been acted upon, with the remaining on track," he noted.
Banking Sector Reforms and Future Roadmap
Regarding the restructuring of Power Finance Corporation (PFC) and Rural Electrification Corporation (REC), Sitharaman indicated that streamlining details will be disclosed shortly. Additionally, she mentioned that a high-level committee on banking will develop a comprehensive roadmap for 2047.
"The committee's terms of reference will encompass the entire banking sector, enabling strategic planning for India's banking future," she added. Financial Services Secretary M Nagaraju stated that the committee will examine various aspects, including credit requirements and other critical banking needs.
This budget reflects a balanced approach, combining measures to protect retail investors with prudent fiscal management and strategic reforms in public asset management and banking.
