Union Budget 2026-27: Money, Markets and the Macro Mood.

As global fault lines deepen and market volatility tests investor nerves, the Union Budget 2026-27 steps into the spotlight. As the countdown begins, Dalal Street is reading between the lines. More than a fiscal statement, it is set to define policy priorities aligned with India’s growth ambitions and could influence capital flows, sectoral leadership, and market direction in the months ahead [EasyDNNnews:PaidContentStart]

India’s Macro Picture Ahead of the Budget

As the Union Budget 2026-27 approaches, India’s macroeconomic landscape presents a blend of resilience and recalibration. After navigating global volatility, domestic economic indicators are steadily moving towards stability, offering policymakers room to fine tune growth priorities without unsettling financial markets. Inflation, which had been a persistent concern, has shown a clear cooling trend. Headline inflation has stayed comfortably below the Reserve Bank of India’s (RBI) tolerance band, supported by softer food prices, improved supply conditions, and easing global commodity costs. This sustained moderation has allowed the central bank to shift its focus from inflation control to supporting growth. 

The RBI has already delivered rate cuts in recent policy actions, signalling that the tightening cycle is firmly behind. With the policy stance now neutral, market participants are increasingly factoring in the possibility of another rate cut in the February policy, particularly if inflation remains benign and growth momentum shows signs of fatigue. Economic growth, while robust compared to global peers, has entered a phase of measured expansion. India’s GDP growth remains among the highest in major economies, supported by public capital expenditure, services sector strength, and improving rural demand. 

However, slower global growth and weak external demand continue to pose challenges for exports. The upcoming Budget is expected to balance fiscal prudence with growth support, especially as medium term GDP targets remain ambitious amid an uncertain global backdrop. India’s external position remains comfortable, despite currency volatility. Foreign exchange reserves continue to hover at healthy levels, providing the RBI with sufficient ammunition to manage sharp movements in the rupee. The recent depreciation of the rupee reflects a mix of global dollar strength and foreign portfolio outflows rather than domestic weakness. 

Government and RBI interventions in the forex market have been timely, aimed at curbing excessive volatility rather than defending a specific level. Capital flows have shown a clear divergence between foreign and domestic investors. Foreign institutional investors have remained net sellers, driven by higher global interest rates, geopolitical risks, and a preference for safer assets. In contrast, domestic institutional investors have consistently stepped in as buyers, supported by strong retail participation and steady inflows into Mutual Funds and insurance products. T his growing role of domestic capital has helped cushion equity markets from sharp corrections and reflects increasing maturity of India’s financial ecosystem. Against this backdrop of easing inflation, evolving monetary policy, stable external buffers, and shifting investor behaviour, expectations from Budget 2026-27 are shaped by the need to sustain growth while preserving macro stability. The government’s policy choices will be closely watched for signals on fiscal consolidation, investment push, and support for consumption in an economy that is recalibrating rather than slowing. Now let us examine what market experts expect from the upcoming Budget across key focus areas. 

Inside the Budget Wish List 

Macroeconomic and Fiscal Strategy



Market experts are expecting the Union Budget for 2026-27 to strike a balance between sustaining growth and maintaining fiscal discipline. With the government’s ongoing f iscal consolidation plan, analysts believe the fiscal deficit will be targeted to remain on a downward path while allowing sufficient room for growth oriented expenditure. There is broad anticipation that the government will prioritise modest deficit reduction rather than large Tax cuts given the macroeconomic backdrop and global uncertainties. Investors and economists are looking for clarity on nominal GDP assumptions, gross and net borrowing plans, and debt servicing costs, as these will influence market liquidity and bond yields. Experts also suggest that significant attention will be given to stimulating private investment, particularly by creating a policy environment that encourages capital formation and foreign institutional investment. Equity market strategists have expressed hopes that the budget will include measures that boost investor confidence, possibly through FII-friendly reforms and stability in tax policy. Given recent concerns around uneven private investment growth, there is expectation that the budget will continue to use public capex as a stimulus while signalling to the private sector the long-term policy direction. Fiscal transparency and predictability are seen as key to market confidence, particularly with India projected to remain one of the fastest growing major economies. 

Financial Sector and Credit Growth



In the lead-up to Budget, the financial sector’s expectations revolve around strengthening credit growth, improving banking sector resilience, and fostering deeper market development. Banks and NBFCs are looking for measures that enhance liquidity and address asset quality challenges in specific portfolios, while supporting sustained credit flow to MSMEs and long-term corporate projects. Analysts expect the budget to include targeted capital infusion for weaker banks, incentives for lending to priority sectors, and facilitation of securitisation markets to reduce financing costs. With credit growth moderating in certain segments, there is anticipation that government schemes may promote credit guarantee programmes, risk-sharing mechanisms, and digital lending architecture to help expand outreach, particularly in underserved regions. Financial markets watchers are also anticipating reforms promoting deeper and more liquid debt and equity markets, including measures that boost participation from domestic institutional investors and foreign portfolio inflows. Strengthening infrastructure for derivatives and fixed income trading is seen as critical to enhancing market depth. Regulatory clarity on emerging finance areas like digital assets, ESG-linked financing, and green bonds could further solidify India’s position as a competitive destination for both capital formation and sustainable investment products. A more enabling tax and compliance framework for financial products and services is likewise expected to enhance investor confidence and broaden participation. 

Taxation Policy



Markets are particularly sensitive to tax policy clarity because any significant changes can influence equity valuations, capital flows, and investor sentiment in the short to medium term. Both markets and tax professionals are closely watching possible tax measures that could influence consumption and investment. On the individual taxation front, there is a widely held expectation that the government will weigh modest reforms to the personal income tax structure, potentially adjusting slabs and deductions to provide relief to the middle class without significantly eroding government revenue. Some observers have suggested a higher standard deduction and adjustments in tax brackets, while others note that drastic cuts may be less likely due to the government’s fiscal consolidation goals and reforms done in last budget with respect to this. Regarding the corporate tax regime, industry bodies have urged clarity and long-term stability, particularly with respect to incentives under existing schemes and any prospective new measures aimed at emerging sectors. There is also discussion about simplifying indirect taxes to support ease of compliance and reduce litigation, particularly in customs and GST, which industry stakeholders flagged as a pain point. 

Infrastructure and Capital Expenditure



Infrastructure is expected to remain a central pillar of India’s growth strategy in Budget 2026-27. Industry voices emphasise continued high allocations for capital expenditure, with projections of a 10-15 per cent increase over the previous fiscal year, reflecting the government’s intent to sustain investment momentum. Stakeholders believe that the focus this year will not just be on headline increases but on execution efficiency and project completion, especially in key segments such as Railways, highways, urban transport, housing, and Logistics corridors. T here is widespread demand for enhancing multimodal connectivity to support supply chains and reduce logistics costs, which is seen as critical for manufacturing and exports. Infrastructure developers are also looking for stronger frameworks that attract private capital, including more flexible viability gap funding mechanisms and clearer risk-sharing structures for PPP projects. Tax incentives linked to infrastructure investment trusts and SPVs are also on the radar as a way to make long-duration infrastructure financing more attractive. T he railways, in particular, is expected to receive continued attention for capacity expansions, safety upgrades, and freight decongestion measures rather than only sharper spending spikes. Higher allocations are also expected for ports and renewable energy projects. Overall, markets expect the budget to reaffirm infrastructure as a driver of growth, while nudging private participation and project delivery timelines to improve. 

Manufacturing and Make in India



Manufacturing stakeholders expect Budget 2026-27 to reinforce the government’s long standing commitment to domestic production and supply chain integration. Amid rising global protectionist measures, the need to strengthen domestic manufacturing and build resilient supply chains has become increasingly critical. With global companies rethinking supply chains, there is anticipation that the budget will include targeted incentives under schemes like Production Linked Incentive (PLI) to broaden domestic manufacturing beyond current sectors. Experts suggest that policy measures could focus on outcome linked support, technology upgrades, and skill development to enhance competitiveness in sectors such as electronics, automotive components, petrochemicals, Defence production, and pharmaceuticals. There are calls for improved ease of doing business, including simpler compliance regimes and faster approvals that reduce entry barriers for MSMEs and global partners. Trade and tariff reforms are also part of industry expectations, particularly rationalisation of duties on raw materials to reduce costs for domestic manufacturers. Broader market participants view this budget as an opportunity to deepen integration of domestic value chains with global demand, especially in sunrise sectors like Semiconductors and green technologies. Commitment to long-term structural reforms and regulatory predictability is seen as essential for boosting investor confidence and attracting foreign direct investments into manufacturing units. 

Defence and Strategic Spending



Against the backdrop of a volatile start to 2026 marked by rising geopolitical tensions, prudent and targeted defence spending has assumed greater importance. In this context, industry experts expect the upcoming Budget to continue supporting defence modernisation and indigenisation in a calibrated manner. T here is broad anticipation of slightly higher allocations for capital expenditures that enhance capabilities in air, naval and land domains, while emphasising Make-in-India initiatives for defence equipment, Aerospace components and advanced surveillance technologies. Stakeholders have reiterated the importance of creating a competitive ecosystem for domestic defence suppliers by extending tax incentives and easing compliance for small and medium defence manufacturers. Strengthening strategic partnerships with foreign OEMs through co-development and co-production pacts tied to clear f iscal benefits is also on the radar. Beyond hardware, investment in cyber defence, space capabilities and AI-enabled command and control systems is seen as pivotal to future readiness. Experts stress the need for budgetary clarity on R&D spends so that private industry can invest confidently in advanced technologies. Given geopolitical uncertainties, markets are closely watching how the budget balances core security needs with fiscal discipline. 

Agriculture and Rural Economy



Agriculture and allied sectors remain a priority for many stakeholders heading into the Union Budget because a large portion of the Indian workforce depends on farming for livelihood. Key expectations include shifting the focus from subsidy-heavy support to infrastructure development that enhances productivity and reduces post harvest losses. Experts have emphasised the need for increased investment in storage facilities, cold chains, micro-irrigation, digital platforms for price discovery, and logistic support that connects farmers to markets more efficiently. There is also advocacy for regulatory simplification, such as a ‘One Nation, One License’ approach for agricultural inputs to reduce compliance costs and improve ease of doing business for seed and fertiliser suppliers. Industry groups are also pushing for rationalisation of GST on fertilisers, uniform tax rates, faster refund mechanisms, and streamlined licensing to address working capital pressures. Other expected focus areas include strengthening allied activities such as horticulture, fisheries, and livestock, which have higher value addition potential and can boost rural incomes. Experts believe the budget should support enhanced access to credit through warehouse receipt systems and weather-indexed insurance products to stabilise farmer incomes in the face of climate risks. Stakeholders are looking for Budget support to scale artificial intelligence (AI) and drone usage in agriculture, particularly for precision farming, yield optimisation, and better risk management. Policymakers are seen as likely to balance traditional support mechanisms like MSP with structural investments that improve competitiveness and sustainability of the rural economy. 

Urban Development and Housing



Urban development and housing stakeholders expect Budget 2026-27 to address affordability and urban infrastructure challenges. With urbanisation accelerating, many experts are pushing for increased allocation to affordable housing schemes, including tax incentives for both developers and homebuyers. T here is also a call for measures that improve access to mortgage financing, such as higher interest deductions and relaxed conditions for first-time buyers, to support broader homeownership amid rising prices. On the infrastructure front, municipal services, water supply, sanitation, and sustainable urban transport are expected to receive priority, with digital governance tools to improve service delivery. Experts are also suggesting incentives for energy-efficient buildings and green Construction practices to align urban growth with sustainability goals. Integrated urban planning with multimodal connectivity and logistics nodes is seen as essential to enhance productivity and reduce congestion. Some industry voices have urged for policy support that integrates affordable rental housing with skill hubs and employment corridors. Expectations include rationalisation of capital gains norms and policy steps to encourage higher NRI participation across equities, Real Estate, and long-term investments. Overall, markets see Budget as an opportunity to make urbanisation more inclusive, resilient and investment-friendly. 

Energy Transition and Power



Ahead of the Union Budget, the energy sector is expected to be a major focal point for f iscal support, especially for renewable energy and clean fuels. Industry bodies have strongly urged for enhanced fiscal incentives and clearer policy frameworks to accelerate India’s transition toward sustainable energy. Experts anticipate the budget allocating increased funds for Solar, wind, biomass, and hydropower projects, along with tax breaks or accelerated depreciation benefits for green energy assets to stimulate private investment. Green hydrogen is expected to receive special attention, with calls for dedicated allocation to support production, R&D, and infrastructure for storage and distribution. Renewable energy stakeholders also want stronger backing for grid modernisation, including support for smart grids and battery storage solutions to manage variability and ensure reliable supply. Decentralised energy solutions such as rooftop solar and microgrids may be encouraged through subsidies and low-interest financing for residential and rural adopters. T here is also industry demand for incentives to promote electric mobility and alternative fuels, including expanded charging infrastructure and support for domestic EV component manufacturing. Lastly, financing innovation such as green bonds and climate investment mechanisms is seen as necessary to mobilise private capital at scale. Overall, markets expect Budget 2026 to signal a firm commitment to energy security, investment in clean infrastructure, and incentives that make renewable projects profitable and competitive. 

Healthcare and Pharmaceuticals



Healthcare stakeholders expect Budget to renew focus on strengthening public health infrastructure and expanding access while modernising the pharmaceutical ecosystem. T here are calls for increased allocation to healthcare, potentially moving closer to global peers in terms of GDP share, and expanding insurance coverage schemes to reduce out-of-pocket expenses for patients. Experts want incentives for domestic manufacturing of medical devices and APIs to reduce import dependence and improve competitiveness. Reduced GST and import duties on key medical equipment and supplies are also anticipated to lower costs and encourage investment in advanced diagnostics and treatment technologies. With digital health gaining prominence, there is expectation that budget proposals will support telemedicine, electronic health record systems, and AI-driven diagnostics to improve efficiency and reach. Policymakers are also urged to focus on preventive healthcare and wellness programmes that can reduce long-term disease burden and strengthen early detection. The pharmaceutical industry is hoping for clarity on tax structures for exports and R&D incentives to sustain innovation while aligning India as a global drug and vaccine manufacturing hub. Some analysts believe tax deductions or credits tied to research expenditure can boost development of new treatments and biologics. 

Technology, AI and Digital Economy

 

Markets and tech industry experts expect Budget to further solidify India’s digital economy ambitions, especially in areas such as AI, data centres, semiconductors, cloud and cybersecurity. Industry associations have called for more robust R&D incentives to propel innovation in emerging technologies, including deep tech fields and next-generation digital infrastructure. Improved tax incentives for software exports, IP creation and digital services are also on the wish list to enhance global competitiveness, particularly for India’s large GCC and tech services sector. With data localisation and trust frameworks gaining prominence, there is anticipation of clear policy guidance on data governance that supports both privacy and business growth. Investments in digital public infrastructure, including payment systems and identity services, are expected to continue as they underpin fintech innovation and ease of business. Technology skilling initiatives with targeted funds to bridge talent gaps in cutting-edge domains, such as AI, robotics and advanced analytics, are seen as critical to sustaining growth. Additionally, support for start-ups and early-stage ventures through tax breaks and easier access to capital is expected to feature in discussions. 

Market and Investor Sentiment 

Market and investor sentiment heading into the Union Budget 2026-27 remains cautiously optimistic, shaped by a mix of domestic resilience and global uncertainty. Equity markets have shown bouts of volatility at the start of the year amid geopolitical tensions, shifting expectations on global interest rates, and intermittent foreign fund outflows. Against this backdrop, investors are looking to the Budget for policy clarity and continuity rather than headline-grabbing announcements. Stability in taxation, a credible fiscal consolidation path, and sustained capital expenditure are seen as key confidence drivers.

Market participants expect the Budget to reinforce growth oriented spending, particularly in infrastructure, manufacturing, defence, renewable energy, and technology, while avoiding any surprises that could unsettle valuations. Clarity on capital gains taxation and a predictable regulatory environment are also critical for restoring stronger FII participation, especially after phases of risk aversion.

At the same time, steady domestic institutional inflows continue to provide a strong cushion, reflecting rising retail participation and long-term confidence in India’s growth story. Bond markets are closely tracking the government’s borrowing programme and fiscal arithmetic, as these will influence yields and liquidity conditions.

Overall, investor sentiment is anchored on the expectation that the Budget will strike a balance between growth support and f iscal discipline, reinforcing India’s position as a preferred long-term investment destination despite near-term global challenges. At Dalal Street Investment Journal, we are closely tracking Budget developments and key announcements to help readers and investors stay informed and make timely decisions. Stay tuned to the DSIJ web platform on Budget Day for quick, meaningful insights into policies shaping long-term and structural growth opportunities.

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