Defence boost, tax tweaks, FDI easing likely in Budget 2026

Union Budget 2026

• India's Union Budget to focus on defense, tax relief, and investment norms
• Defence spending may rise by 20 percent; foreign investment rules could be eased
• Fiscal deficit target set at 4.2 percent of GDP; borrowing projected to increase

Did our AI summary help?

India is set to present its annual Union Budget on Sunday, with expectations of higher defence outlays, possible tax relief for market participants and steps to simplify foreign investment norms, according to a Reuters report.

Finance Minister Nirmala Sitharaman will unveil the budget for the fiscal year starting April at 11 a.m., and global investors will be closely watching the government’s plans to rein in debt and manage borrowing.

Fiscal deficit and borrowing

Economists expect New Delhi to outline a path to reduce government debt to about 49–51 percent of gross domestic product by 2031, from the current 56 percent.

The fiscal deficit target for 2026–27 is likely to be pegged at 4.2 percent of GDP, slightly lower than this year’s 4.4 percent. However, gross market borrowing is projected to rise to around Rs 16–16.8 trillion, compared to Rs 14.6 trillion in the ongoing fiscal year.

Defence spending in focus

The Defence Ministry is pushing for nearly a 20 percent increase in military expenditure following a brief but intense conflict with Pakistan. The government is also expected to relax rules for foreign investment in defence manufacturing. Industry body FICCI has proposed the creation of defence industrial corridors and an export promotion council to help India reach its defence export target of $5.5 billion by 2029, Reuters reported.

Infrastructure push may stay steady

Capital expenditure is likely to remain around 3.1 percent of GDP. Recent income and consumption tax cuts are seen as limiting the government’s ability to sharply raise infrastructure spending beyond roughly Rs 12 trillion, up from about Rs 11.2 trillion this fiscal year.

Export sector demands relief

The Federation of Indian Export Organisations has urged the government to lower import duties on essential inputs used in textiles, electronics and chemicals to boost domestic manufacturing. Exporters are also seeking easier regulations and access to long term financing as they face pressure from US President Donald Trump’s 50 percent tariffs on Indian goods entering the American market, according to Reuters.

Possible tax changes

Tax experts have recommended scrapping the securities transaction tax, which is charged on equity and derivatives trades even when investors incur losses. FICCI has also called for revisions in income tax rules that currently make it harder for global firms such as Apple to provide machinery to their Indian contract manufacturers.

*with Reuters inputs