Rs 53.5 lakh cr outlay lifts infra, industry and data centres, but higher STT dents market sentiment
NEW DELHI, Feb 1: Finance Minister Nirmala Sitharaman on Sunday presented the Union Budget for 2026–27, with a total outlay of Rs 53.5 lakh crore, outlining a long-term plan to sustain growth amid global uncertainties.
The Budget focused on capital expenditure, manufacturing expansion, fiscal consolidation, and investment-led growth, avoiding populist measures despite assembly elections in five key states, including West Bengal and Tamil Nadu.
Presenting her ninth consecutive Budget in a nearly 90-minute Lok Sabha speech, Sitharaman positioned the proposals as part of India’s journey towards “Viksit Bharat,” aiming to generate employment, strengthen domestic manufacturing, and combine emerging technologies with traditional industries.
Markets reacted nervously to a hike in securities transaction tax (STT) on equity derivatives, with benchmark indices dropping up to 2 per cent during special Budget trading before partially recovering.
Infrastructure development remained central. Capital expenditure for FY27 was raised to Rs 12.2 lakh crore from Rs 11.2 lakh crore in FY26.
Plans for seven high-speed rail corridors were unveiled, and defence spending rose nearly 20 per cent to Rs 7.85 lakh crore, with capital modernisation exceeding Rs 2 lakh crore for the first time.
Manufacturing received a major push, targeting seven priority sectors: pharmaceuticals, semiconductors, rare-earth magnets, chemicals, capital goods, textiles, and sports goods, with an emphasis on technology-driven development and job creation.
Electronics manufacturing outlay doubled to Rs 40,000 crore, and a second phase of the semiconductor mission was announced to strengthen supply chains.
A Rs 10,000 crore investment over five years will develop India as a biopharma manufacturing hub. Other initiatives include rare-earth corridors, textile parks, container manufacturing, chemical parks, and revival of 200 legacy industrial clusters to enhance domestic production and reduce import dependence.
Significantly, a 20-year tax holiday was announced for overseas firms providing global data centre services from India, alongside a 15 per cent safe harbour on costs for related entities of foreign cloud companies.
These measures aim to provide tax certainty, operational efficiency, and attract large-scale investments from firms like Google, Microsoft, and Amazon Web Services, which committed USD 40 billion to India in 2025.
On taxation, personal income-tax slabs largely remain unchanged, but share buybacks will be taxed as capital gains, TCS on overseas tours, education, and medical expenses was reduced, and the new Income Tax Act will take effect April 1. Customs reforms included rationalising exemptions, waiving duties on 17 cancer drugs, easing baggage rules, and reducing personal import duties to 10 per cent.
Agriculture and allied sectors received support for livestock, fisheries, high-value agriculture, and textiles. Tourism initiatives include eco-friendly mountain trails in Himachal Pradesh, Uttarakhand, and Jammu and Kashmir, along with development of 15 archaeological sites.
A Rs 10,000 crore SME Growth Fund was announced to scale up small businesses.
On fiscal consolidation, the government targets a fiscal deficit of 4.3 per cent of GDP in FY27, down from 4.4 per cent, and a debt-to-GDP ratio of 55.6 per cent, down from 56.1 per cent. Borrowing is projected at Rs 17.2 lakh crore amid firming bond yields.
STT hikes on derivatives saw futures STT rise to 0.05 per cent from 0.02 per cent, and options STT rise to 0.15 per cent from 0.01 per cent. Sitharaman defended the move to discourage speculative trading by small investors.
The Budget also accelerated migration to a simpler corporate tax regime. Companies opting for the new regime can set off accumulated Minimum Alternate Tax (MAT) credit, capped at 25 per cent of annual liability. From April 1, 2026, MAT will become final, with no credit available, encouraging adoption of the new system.
Pre-deposit requirements for tax appeals were reduced to 10 per cent from 20 per cent, offering partial relief, though disputed corporate and personal tax demands rose to Rs 15 lakh crore from Rs 13 lakh crore.
Other measures include raising investment limits for Persons of Indian Origin (PROI) in Indian listed companies to 10 per cent from 5 per cent, with aggregate limits rising to 24 per cent from 10 per cent.
Energy transition initiatives include rare-earth corridors in Odisha, Andhra Pradesh, Kerala, and Tamil Nadu, alongside customs-duty exemptions for capital goods in critical mineral processing.
A Rs 20,000 crore Carbon Capture, Utilisation, and Storage (CCUS) programme was announced to decarbonise power, steel, and cement. Customs exemptions for nuclear projects were extended till 2035 to strengthen base-load energy stability. Tax exemptions for battery storage systems, lithium-ion cells, solar-glass inputs, and biogas-blended CNG aim to improve renewable energy project viability.
Sports goods, historically underinvested, received recognition to help MSMEs access global markets. Agriculture segments like dairy, poultry, and fisheries were also supported to drive inclusive growth.
While sweeping customs reforms were not introduced, domestic manufacturing in renewable energy, aviation, and electronics is promoted through reduced duties on components and capital goods. One-time relief for SEZ units supplying domestic markets may help offset US tariffs.
Prime Minister Narendra Modi described the Budget as “historic” and a “highway of opportunities,” reflecting aspirations of 140 crore Indians.
He said it lays the foundation for Viksit Bharat by 2047, giving momentum to reforms and targeting India as the world’s third-largest economy at the earliest.
Christian de Guzman, Senior VP at Moody’s Ratings, said the Budget provides tactical support amid external uncertainties, such as unresolved US tariffs, while continuing strong infrastructure spending.
He cautioned that GST rationalisation and other support measures may erode tax revenue as a share of GDP, affecting debt affordability, though India’s overall fiscal strength remains intact.
Overall, the FY27 Budget focuses on continuity, long-term growth, domestic manufacturing, infrastructure, fiscal discipline, and investment incentives, even as markets reacted to the derivatives STT hike.
It seeks to balance ambitious economic targets with fiscal prudence, while promoting technology-driven growth, employment generation, and sectoral development across manufacturing, energy, agriculture, tourism, and MSMEs. (PTI)
