In a year when four States and one Union Territory — Tamil Nadu, Kerala, Assam, West Bengal and Puducherry — are headed for Assembly elections, expectations around the Union Budget, at least in political circles, were that these States would receive some goodies.

While the Budget did include announcements touching these States, the measures were packaged within broader multi-State initiatives that reflected the Government’s attempt to balance domestic political expectations with global economic uncertainties. 

Union Budget 2026 LIVE: Inflation is down in India and it is remaining there for some time, says Finance Minister at post-Budget presser

This was, in fact, one of the first questions Union Finance Minister Nirmala Sitharaman was asked during her post-budget press conference — whether she had deliberately avoided poll-bound States after previous budgets that announced sops were criticised. “There is enough to cover all the election-bound States. Much has been announced for election and non-election States,” she said.

For West Bengal, the announcements include a proposed high-speed rail corridor between Siliguri and Varanasi, a Dankuni (East)-Surat (West) dedicated freight corridor, and an East-West Industrial Corridor. Tamil Nadu and Kerala feature in a Rare Earth Corridor along with Odisha and Andhra Pradesh, alongside incentives for farmers growing cashew, coconuts and Cocoa. The “Turtle Trails” project includes coastal areas of Odisha, Karnataka and Kerala. Assam is set to be a part of a Buddhist tourism circuit encompassing northeastern States like Tripura, Arunachal Pradesh, Sikkim, Manipur and Mizoram. The Lokpriya Gopinath Bordoloi Regional Institute of Mental Health in Tejpur, Assam, will also be upgraded.

By wrapping these measures in a multi-State spread, the government appeared to send the message that while concerns over domestic politics remain important, the global headwinds and the trade issues hanging fire were looming over it all.

The setting up of a National Institute of Hospitality for training in the service sector, encouraging women in STEM by setting up girls’ hostels in STEM institutions across districts, and several measures in the tax proposals to boost the manufacturing sector were the bigger announcements. A ₹40,000-crore push for Semiconductor Mission 2.0, and an electronics manufacturing boost were also announced.

All these measures, government sources said, are aimed at insulating India from global trade disruptions, strengthening supply chains, and preparing Indians for different skill set demands from countries with which India has concluded or is finalising Free Trade Agreements.

Many of these measures, however, are not immediately saleable in electoral terms and will require careful support from the government to bear fruit. The broader aim, government managers argue, is to craft a new narrative — of constructing a rail track in anticipation of a train running on it not today, but several years later — a horizon that may be far, but could affect the legacy of the Modi years (the period of governance under Prime Minister Narendra Modi).

Seeking to attract global business and investment into India, Union Finance Minister Nirmala Sitharaman in her budget presentation Sunday (February 1, 2026), among other things, providing a fillip to toll manufacturing in the country proposed exempting non-residents from paying income tax for five years. Further, she also proposed to exempt minimum alternate tax to all non-residents who pay tax on a presumptive basis.

The Finance Minister informed that proposed five-year exemption for toll manufacturing would be applicable to any non-resident who provides capital goods, equipment or tooling, to any domestic toll manufacturer in a bonded zone, in other words, a custom-controlled area. This would apply to those engaged in manufacturing of electronic goods.

Further, seeking to rationalise the minimum alternate tax (MAT) regime and facilitate transition to a new regime, the finance minister also proposed to exempt all non-residents from paying MAT who pay them on presumptive basis. For context, non-residents who avail the presumptive scheme of taxation are exempted from MAT provisions. The proposed provision extends this exemption to all non-residents who pay tax on presumptive basis.

According to Pallavi Dinodia, Co-Chair of the Direct Tax Committee at the industry body PHDCCI this would help provide for “tax certainty, cash-flow predictability and fewer disputes”.

Among other major provisions, the Budget also proposed to extend a tax holiday until 2047 for foreign companies looking to procure data centre services in India. “It will, however, need to provide services to Indian customers through an Indian reseller entity,” Ms. Sitharaman stated.

Reflecting on the overall set of measures, Riaz Thingna, Partner at Grant Thornton Bharat told The Hindu, “These measures can unlock long-term capacity investments, deepen the data-centre ecosystem, and make India a preferred base for secure, scalable cloud delivery to the world.”

Finance Minister Nirmala Sitharaman on Monday (February 2, 2026) said the Union Budget for FY27 has focussed on investment as a priority tool for boosting consumption, and the trajectory of fiscal deficit shows that the government’s priority is growth.

Interacting with the media after the 2026-27 Budget presentation, Ms. Sitharaman also the volatility in gold prices is due to global uncertainty, and many central banks are investing in gold.

“It also shows that investors do not have confidence in any one particular currency. and hence the rush to buy gold,” Ms. Sitharaman said.

Talking about hike in securities transaction tax (STT) on F&O trades, the minister said it is a “sort of deterrence so that people do not go headlong in speculative” derivative trading.

Pocket-size politics: Budget 2026 in cartoons

Illustration: Soumyadip Sinha

Illustration: Soumyadip Sinha

Illustration: Soumyadip Sinha

Illustration: Soumyadip Sinha

Illustration: Soumyadip Sinha

Illustration: Soumyadip Sinha

Illustration: Soumyadip Sinha

Illustration: Soumyadip Sinha

Illustration: Soumyadip Sinha

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The Budget has proposed an increase in STT on futures contracts to 0.05% from 0.02%. STT on options premium and exercise of options are proposed to be raised to 0.15% from the present rate of 0.1% and 0.125%, respectively.

According to studies by SEBI, over 90% of retail investors’ trades in the F&O segment lead to losses, and the capital markets regulator has also taken steps to reduce volumes in the past.

“We have only touched the F&O trade which is highly speculative. I have received calls from many parents saying their children are severely losing money, and also seeking government intervention. The STT hike in F&O will act as a deterrence so that people do not go headlong with that,” Ms. Sitharaman said.

Continuing on the path of fiscal consolidation, the Budget has pegged fiscal deficit at 4.3% of GDP for the next fiscal year, as against 4.4% for the financial year ending March 2026.

Ms. Sitharaman said the fiscal deficit target has to depend on each year’s economic situation and in the past the government has pegged fiscal deficit a couple of basis points lower than the previous fiscal year.

This fiscal with the “government’s priority being growth, I am comfortable with 4.3% deficit target. We will see how it goes,” Ms. Sitharaman said.

She also said the pace of disinvestment and asset monetisation will continue. The government will encourage more disinvestment of public sector companies. IDBI Bank strategic disinvestment on track, pace of PSU stake sale to set direction of non-tax revenues, Ms. Sitharaman said.

In October 2022, the government, together with LIC, had invited EoI (Expression of Interest) from investors for privatising IDBI Bank by selling a total of 60.72% stake. This includes a 30.48% stake of Government of India and 30.24% of LIC.

DIPAM, in January 2023, received multiple EoIs for IDBI Bank. The prospective buyers of IDBI Bank have already been granted security clearance by the Ministry of Home Affairs and cleared fit and proper after evaluation by the Reserve Bank of India.

Ms. Sitharaman also expressed confidence that the recent higher private consumption, which was driven by GST rate cut and hike in Income Tax exemption limit in FY26 Budget, will sustain in coming months.

The direction of fiscal policy is influenced by the nature of fiscal policy rules. The present fiscal policy rule of the Union government is informed by what can be termed as sound finance rules, where the government typically aims to meet a given borrowing target. While India has been largely following sound finance rules since the implementation of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, there have been two modifications since the last year.

First, in contrast to the FRBM Act, where the fiscal deficit-GDP ratio acted as the primary policy target, it is the debt-GDP ratio which appears as the primary policy target in the new policy rule. Second, the targeted level of debt-GDP ratio in the new rule stands at around 50%, which the government proposes to meet by 2031. The new rule allows the government to sustain higher debt-GDP ratio as compared to the level suggested in the FRBM Act (40%).

There are at least two implications of the present variant of sound finance rule for this year’s Budget. First, since the present level of debt-GDP ratio stands above the targeted level, the government has aimed to reduce its debt-ratio by reducing the primary deficits and fiscal deficits from 0.8% and 4.4% in FY 2026 to 0.7% and 4.3% respectively in FY 2027. The fiscal consolidation strategy is similar to one pursued since FY 2022.

Second, the new target of debt-GDP ratio has provided greater fiscal space to the government as compared to the FRBM Act. While both the primary and the fiscal deficits have been reduced for FY27, the magnitude by which they have been reduced is less severe compared to the period since FY22.

Meeting the fiscal target

Any reduction in primary deficits and fiscal deficits requires the government to reduce its expenditures as compared to the non-debt receipts. The Budget Estimate (BE) of FY27 indicates a fall in the government’s share of non-debt receipts in GDP to 9.3% as compared to 9.5% in FY26. This is largely on account of the fall in the share of indirect taxes and GST, both of which indicate a decline by 0.3% points in FY27 as compared to FY26.

Amid lower non-debt receipts, the reduction in deficits in FY27 is brought about by a more than proportionate fall in the share of total expenditure in GDP. As compared to 13.9% in FY26, the BE of expenditure-GDP ratio indicates a decline in FY27 to 13.6%. While the capital expenditure-GDP ratio remains roughly at the same level (3.1%), the reduction in expenditure ratio is brought about by the reduction in revenue expenditure. This trend is similar to the previous years, where the government has aimed to change the composition of expenditures in favour of capital expenditure on account of its high multiplier value.

The burden of adjustment of this reduction in total expenditures has fallen on development expenditures. The latter is the sum of government expenditures on the social sector and economic services. The Annual Financial Statement indicates a reduction in the BE of the share of development expenditures in GDP to 5.7% in FY27 as compared to 6.1% in FY26. The reduction in the share of development expenditures is largely on account of a similar fall in the expenditures on rural development and agriculture and allied activities, the share of which indicates a decline to 1.2% in FY27 as compared to 1.5% in FY 26. The fall in rural development expenditures was on account of sharp fall in the expenditures in the revenue account of rural employment.

In short, the stimulating positive effect of the reduction in the GST and the indirect taxes on demand has been completely nullified by the adverse demand effect from the reduction in the agricultural and rural expenditures.

While the recent changes in the fiscal rules by the government are welcome, the continuity of fiscal consolidation strategy brings about at least two key concerns.

Two concerns

The first concern relates to stimulus for investments in an uncertain global economy. The investment-capital ratio of the corporate sector in the recent period has remained low in the midst of low global demand and exports. The present fiscal strategy hardly provides any stimulating role to corporate investments.

The second concern involves the distribution question in India’s growth process. The burden of adjustment of the fiscal consolidation strategy of the government has been largely borne by the development and agricultural expenditures in the recent period. This is in contrast to the corporate tax-GDP ratio, the level of which remains largely the same as the pre-covid level. While meeting its debt targets, the present fiscal strategy has largely bypassed these two challenges.

Zico Dasgupta teaches economics at Azim Premji University

One interesting thing about the Budget is that people usually do not do a reality check vis-a-vis the previous Budget because the current one takes centre stage. Since Budget 2026-27 is quite run of the mill, it will not be out of place to start with the last Budget.

If there is one thing you would recall about Budget 2025-26, it was the big-ticket announcement of an unprecedented tax cut for the “middle class”. The government assumed that despite the tax cut, income tax revenues would go up because of higher compliance and rise in middle-class incomes. But did that happen?

Looking back

As we had argued last year in these columns, the tax gamble may not pay off and it has not. Income tax revenues have fallen woefully short of the estimated 14.38 lakh crore. In the Revised Estimate (RE), the collection is 13.12 lakh crore, so a shortfall of 1.26 lakh crore. Add to that a similar shortfall of 1.31 lakh crore in GST collections. But for a marginally better than expected performance from corporate tax, union and excise duties, the shortfall in the overall gross tax revenue would have been much higher than 1.92 lakh crore (tax part of the chart).

To be sure, this shortfall in itself could be dismissed as a mistake in expectations. But when expenditures are linked to tax collections (which they strictly are under the rules of fiscal deficit targets), the matter is far more serious. When spending is directly tied to revenue collections, a shortfall of this magnitude inevitably results in sharp expenditure cuts. Not surprisingly, there has almost been an across-the-board cut in expenditure (expenditure part of the chart). Even the much-touted capital expenditure (capex) saw a cut, as did agriculture, education, health, rural as well as urban development. A mistake in the government’s expectations cost the poor their income, their employment, their education and, their health.

Not for 2026

Budget 2026-27 needs to evaluated in light of this. This is going to be an uncertain year, both politically and economically. India is precariously placed between a current account surplus with the U.S. but a deficit with China. If its exports gets affected as a result of President Donald Trump’s tariff war, without its imports countering the fall, the external situation for India may actually worsen. The Economic Survey at least acknowledged this possibility, although with a low probability of 10%. In a fundamentally uncertain world that we currently find ourselves in, you don’t want to take refuge in probability theory.

The Budget seems to have taken this probability a little too literally. It has been planned as if we are still in 2025 and such a worsening of the external sector may not happen. If the external demand actually worsens, it is important for the government to focus on domestic demand as well, at least as plan B. A run-of-the-mill Budget like this one would have been fine in normal times but not this year. The focus remains on fiscal prudence, capex, supply-side measures for employment, and credit guarantees to MSMEs, much like the previous Budget or the ones before. Despite the same macroeconomic approach in earlier Budgets, employment numbers, particularly among the youth, have not been encouraging at all. Corporate investment has not been either. Should not the government have gone back to the drawing board if their existing strategies were not working? And yet what we got is more of the same. This lack of imagination comes from a blinkered vision of how the economy works. Supply-side measures work only when complemented with demand, not on their own.

Let us again take the case of public capex as a demand measure. All capex are not the same. Capex in agriculture or health or education is not the same as capex in highways. The first creates jobs along with boosting demand. Now in a world where you don’t pit one capex against the other, this would not have been an issue. But if capex in infrastructure comes at the cost of capex in the form of development expenditures, and that too in an economy where gainful employment is limited, there is a serious problem. We keep boasting about our demographic dividend, which is going to peak in 2030, but we have lost most of it already with a high unemployment rate among the youth. For women, particularly in the urban areas, it is even worse.

Missing targets

What could the Budget have done instead? First, it should have kept its hawkish fiscal stance in abeyance, especially for an uncertain year such as this. It should have prioritised employment intensive development expenditure, and welfare expenditure, which also have a multi-round demand generating capacity. And second, this was perhaps the year to take the pollution bull by the horn. People were on the streets of Delhi demanding action. For the first time, it became a political issue. We needed a war on pollution but it does not even find a mention, let alone allocation. It is an opportunity lost.

Rohit Azad teaches Economics at JNU; Indranil Chowdhury teaches Economics at PGDAV College, Delhi University

A year after a Budget that won quick approval for its tax cuts, Union Budget 2026 has drawn a more muted response in Hyderabad, with citizens calling it progressive in intent but short on immediate relief.

While the emphasis on long-term economic growth, infrastructure spending and fiscal discipline has found support, the absence of changes to income tax slabs or the standard deduction has left many salaried taxpayers disappointed.

“This means my monthly take-home salary remains the same despite rising rent and fuel costs in Hyderabad,” said Sai Prasad, a private employee from Hafeezpet. The pressure on middle class households remained unchanged. Big capital expenditure may improve infrastructure and create technology jobs, but affordable housing has been left out. Growth is important, but the middle class needs breathing space too, he said.

For some residents, the Budget dampened near-term personal plans. Richa Rao, 36, a businesswoman from Bachupally, said her hopes of buying a home had been pushed further away. “By mid-2025, I had saved enough to seriously consider purchasing a house. I was expecting some relief, or at least a small push, but to my surprise the budget did not touch on affordable housing,” she said.

Others found small but tangible gains. Kaushik M.S., 28, a private employee from Amberpet, said the proposed increase in cigarette prices had unexpectedly strengthened his resolve to quit smoking. “My New Year resolution didn’t even last through January. Maybe the price hike will finally help me restart my 2026 resolution in February,” he laughed.

For Surender Rao, 63, a retired banker from Secunderabad, the reduction in tax collected at source on overseas remittances brought relief. “Sending money abroad for my son’s education in the US had become unnecessarily expensive. With the rate coming down, paying his semester fees, which is due in a month, will be easier,” he said.

Beyond traditional sectors, residents welcomed the recognition of the content creation ecosystem. Priya, a college student from Secunderabad, said the announcement of AVGC content creator labs gave her renewed hope. “I’ve been making videos for YouTube and social media, but structured training was missing. This reform makes a career in this field feel more realistic and acceptable at home,” she said.

Announcements on high-speed rail connectivity linking Hyderabad with growth centres such as Pune, Bengaluru and Chennai also struck a chord, reinforcing the city’s role as a regional economic anchor.

During her Union Budget presentation on Sunday (February 1, 2026), Finance Minister Nirmala Sitharaman informed that the new Income Tax, 2025, would come into effect in April this year, with the forms and rules to be notified “shortly” provisioning “adequate time” for taxpayers to acquaint themselves with the requirements.  

Ms. Sitharaman also told the House that the forms have been redesigned such that ordinary citizens would be able to comply without any difficulty.