Union Budget 2026-27: Finance Minister Nirmala Sitharaman Set to Present Ninth Budget Amid Subdued Market Expectations
Finance Minister Nirmala Sitharaman is poised to present the ninth consecutive Union Budget for the financial year 2026-27 in Parliament on Sunday, February 1. This crucial fiscal document arrives at a time when market expectations remain notably subdued, with investors largely prioritizing policy stability over bold, headline-grabbing reforms.
The global economic environment has deteriorated sharply since the previous budget presentation. This downturn is primarily driven by a significant rise in protectionist measures following former US President Donald Trump's announcement of tariffs on multiple nations, including a steep 50% hike on Indian imports. This development has unsettled a global economic order that had remained relatively stable for decades, casting a shadow over international trade dynamics.
Top Five Expectations from Union Budget 2026-27
1. Fiscal Consolidation Approach to Be Largely Maintained
According to analysis from Choice Institutional Equities, the government has demonstrated steadfast commitment to fiscal consolidation. The fiscal deficit has eased from a COVID-19 induced high of 9.2% to an expected 4.4% for FY26.
"We believe the government will largely maintain its fiscal rectitude and do not expect major deviation from this path," the firm stated. "However, given that FY27 will mark a transition to debt-to-GDP ratio as a targeted fiscal marker, and considering that overall consumption remains incomplete in its recovery with uneven sentiment improvement, a scenario of pragmatic, minor fiscal stretch is not completely ruled out."
2. Greater Focus on Capital Expenditure
Since the FY26 Union Budget emphasized boosting middle-class consumption—primarily through personal income tax relief of approximately ₹1 trillion—with its full impact yet to materialize, brokerage firms anticipate the FY27 budget will adopt a more targeted approach to supporting consumption.
"The budget is likely to focus more on capital expenditure, especially in sectors deemed strategically important due to prevailing geopolitical compulsions," analysts noted. "We expect greater emphasis on sectors like defense, critical minerals, power, electronics, infrastructure, and accelerated growth in affordable housing."
3. Progressive GST Reforms
Although recent tax cuts, relief measures for individual taxpayers, and GST rate rationalization have not yet produced meaningful impact, analysts believe the forthcoming budget will progressively move toward a more balanced growth approach.
This approach would involve backing both capital spending and consumption while preserving fiscal discipline. "GST restructuring and higher tax slabs were already implemented by the government in FY25. However, we believe the government will continue to support consumption through targeted incentives and subsidies," the brokerage firm added.
4. Targeted Consumption Support
As the impact of last year's ₹1 lakh crore personal income tax relief continues to unfold, analysts do not anticipate any broad-based push to boost consumption in the upcoming budget.
Motilal Oswal suggests that any consumption support is likely to be targeted rather than widespread. Targeted measures focused on consumer durables or housing could help improve sentiment in specific market segments currently under pressure.
5. Increased Budget Allocation in Defense and Railways
Market analysts are expecting at least a 20% year-on-year spending increase in the defense sector, driven by geopolitical tensions, force modernization requirements, and indigenization policies.
"The capex-heavy allocation mix continues, reinforcing the structural shift from imports to domestic manufacturing of long-cycle platforms," the firm explained. "Platform finalization phases for Tejas Mk-2, QRSAM, and MRSAM programs are likely to receive execution approvals, providing multi-year revenue visibility. Spending diversification toward systems, subsystems, and lifecycle components will reduce episodic revenue dependence."
Meanwhile, the brokerage firm anticipates railways will witness a modest increase in allocation with continued focus on easing congestion, expanding capacity through new lines and track doubling, and developing freight corridors.
Disclaimer: This analysis is for educational purposes only. Readers are advised to consult with a qualified investment advisor before making any financial decisions.
