Union Budget 2026 is set to be presented on Sunday, 1 February, by Finance Minister Nirmala Sitharaman. It will mark her ninth budget and the 88th budget in India’s post-Independence history.
Investors are watching closely for signals on how India plans to support growth and revive capex growth while maintaining fiscal discipline amid heightened geopolitical and macroeconomic uncertainty.
Since the last Union Budget, the global landscape has taken a sharp turn for the worse, with rising protectionism following US President Donald Trump’s announcement of tariffs on several nations, including a 50% higher tariff on India, altering a world order that had remained largely intact for decades.
Against this backdrop, analysts expect the upcoming budget to focus on boosting domestic manufacturing and strengthening supply chains while balancing growth priorities and maintaining fiscal consolidation.
Capex, consumption both in focus
In the previous budget, the government shifted its focus towards consumption over capital expenditure to boost domestic demand by providing tax exemptions to individual taxpayers and rationalising GST rates. The results were visible, especially in rural regions, while urban consumption stagnated during this period, said domestic brokerage firm JM Financial.
The brokerage also pointed out that weak urban consumption is holding manufacturers back from setting up new capacities. Citing RBI data, it noted that capacity utilisation among manufacturing firms has been trailing below the 75% mark, compared with utilisation levels of 80–83% during the previous capex cycle.
However, in the upcoming budget, the brokerage expects the Union finance minister to strike the right balance between consumption and capital expenditure.
Capex allocation is likely to be 3% of GDP
Unlike the higher multiplier effect of capex (1.5 to 3 times)—where every ₹1 spent on capex can increase GDP by up to ₹3 and have a durable impact—spending on revenue expenditure boosts consumption largely in the short term, the brokerage underscored.
Following the government’s sustained emphasis on fiscal consolidation alongside a strong public capex push over the past decade, the brokerage expects budget announcements for FY27 to gradually evolve towards a more balanced growth framework that supports both capex (around 3% of GDP) and consumption while maintaining fiscal prudence.
Considering uneven global growth and external trade-related uncertainties, JM Financial expects the budget announcements to be more inward-looking, with a focus on domestic demand resilience, supply chain self-reliance, and macroeconomic stability.
The brokerage believes government policies should be directed towards improving employment opportunities across manufacturing and services. Moreover, channelling untapped female labour into productive activities should be a top priority.
Despite muted tax revenue collection in FY26, the brokerage anticipates that the government will achieve its fiscal deficit target of 4.4% of GDP in FY26.
Private capex needs support and time to revive
The government announced the PLI scheme across 14 sectors, attracting over ₹2 trillion in investments, generating incremental sales of ₹12.5 trillion, and creating over 0.95 million jobs. However, according to the brokerage, meaningful progress is evident only in mobile manufacturing, while other sectors are yet to scale up.
If India is to meaningfully transition into a global manufacturing hub, the PLI framework needs to be institutionalised over a longer horizon, with periodic recalibration to address sector-specific constraints and evolving global competitiveness.
“A cluster-based approach to manufacturing policy would be critical in fostering integrated industrial ecosystems and domestic value chains, enabling productivity gains through shared infrastructure, labour pooling, technology spillovers, and efficient resource allocation over time,” the brokerage said.
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