As the Union Budget 2026 is set to be presented in Parliament by Union Finance Minister Nirmala Sitharaman on Sunday, February 1, market expectations remain measured, with investors largely focused on policy continuity rather than headline-grabbing reforms.
Since the last Union Budget, the global landscape has taken a sharp turn for the worse, marked by rising protectionism following US President Donald Trump’s announcement of tariffs on several nations, including a steep 50% higher tariff on India. This move has disrupted a global order that had remained largely intact for decades.
While recent tax cuts, tax exemptions for individual taxpayers, and the rationalization of GST rates are yet to meaningfully play out, analysts expect the upcoming budget to gradually evolve towards a more balanced growth framework—one that supports both capital expenditure and consumption while maintaining fiscal prudence.
Capex to remain the cornerstone of budget strategy
Domestic brokerage firm Motilal Oswal believes that the FY27 Union Budget’s approach to stimulating consumption will be selective. Consequently, it expects the budget to continue prioritizing capital expenditure, especially in sectors considered strategically important amid prevailing geopolitical compulsions.
Fiscal consolidation and capital investment have been the key themes of Union Budgets in recent years. The central government has successfully reduced its fiscal deficit from 9.2% of GDP in FY21 to an estimated 4.4% in FY26E.
Moreover, allocations toward capital expenditure have risen sharply—from ₹1.9 trillion in FY14 to ₹11.2 trillion in FY26. As a percentage of GDP, capex allocation peaked at 3.1% in FY25, compared with 1.6% in FY18, according to JM Financial.
However, the brokerage noted that the pace of capex allocation has moderated since FY25, as the government shifted some focus towards stimulating consumption demand in the economy.
Motilal Oswal expects the finance minister to strike the right balance between consumption and capex. Unlike capital expenditure—which has a higher multiplier effect of 1.5 to 3 times, where every ₹1 spent can lift GDP by up to ₹3 with a durable impact—revenue expenditure boosts consumption largely in the short term, the brokerage said.
Anand Rathi expects the government to balance gradual fiscal consolidation with a continued emphasis on capital expenditure, manufacturing incentives, and ease of doing business, while keeping revenue expenditure in check.
Meanwhile, Axis Securities said the budget is likely to further strengthen the long-term vision of “Viksit Bharat @2047,” building on the structural transformation achieved over the past decade and laying the foundation for durable, inclusive, and investment-led growth in the years ahead.
Brokerages see capex holding above 3% of GDP in Budget 2027
Anand Rathi expects the government to maintain its capex-to-GDP ratio at around 3.2%, with absolute capital expenditure rising about 13% year-on-year to nearly ₹12.6 trillion. Capex is expected to remain the primary growth lever, with allocations largely concentrated in defence—with a strong emphasis on indigenization—railways and logistics, roads and highways, telecom and digital infrastructure, as well as long-term capex loans to states.
Axis Securities said capital expenditure remains the cornerstone of India’s growth strategy and expects the Union Budget 2026–27 to allocate ₹12–13 trillion towards capex, implying a 10–15% year-on-year increase.
The brokerage added that key focus areas are likely to include roads, railways, logistics infrastructure, defense and indigenisation of equipment, urban infrastructure and housing, power transmission, renewables, and green energy.
JM Financial believes that any curtailment in capex due to fiscal constraints should not allow spending to fall below 3% of GDP, as that would weigh on economic growth.
Meanwhile, Motilal Oswal expects the budget to place greater emphasis on capital expenditure, particularly in sectors considered strategically important amid prevailing geopolitical compulsions. The brokerage expects higher allocations for defence, critical minerals, power, electronics, infrastructure, and stronger growth in affordable housing.
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