OPINION Budget 2026 prioritises fiscal prudence, capacity creation and investment confidence, positioning India for resilient growth despite volatility

Rupen Rajguru of Julius Baer India shares Budget analysis

• Theme of budget focused on three key issues - fiscal stability, attracting foreign investment, improving ease of taxation
• Budget makes significant strides in cutting down subsidies and ensuring fiscal discipline
• Budget makes strategic allocations in areas where country faces critical challenges

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The Budget 2026 was set against the backdrop of a heightened geo-political noise, constantly changing global dynamics and depreciating INR. The theme of the budget largely focused on three key issues: fiscal stability, attracting foreign investment, and improving ease of taxation. Additionally, it also undertook reforms in the customs duty framework, as was indicated by the finance minister previously.

The government has continued to maintain its path of fiscal consolidation by targeting fiscal deficit at 4.3% of GDP (Vs FY26 fiscal deficit of 4.4% of GDP). This is a lower reduction compared to 20-25bps reduction expected by the market.

In the past few years, India's fiscal consolidation has been more contractionary - as deficits fell sharply from 9.2% of GDP in FY21 to 4.4% of GDP in FY26E. However, from FY27 onwards, this pace of consolidation will largely be geared towards stability, and will be driven by debt sustainability, rather than just a pre-determined path. This would also imply that the role of nominal GDP growth and interest rates will become much more important.

Overall, the budget makes significant strides in cutting down subsidies and ensuring fiscal discipline. It laid a clear path for growth, leveraging India’s key strengths such as labour-intensive legacy manufacturing and the untapped potential of sectors such as tourism and electronics manufacturing.

It also made strategic allocations in areas where the country faces critical challenges such as rare earth minerals development, data centers and cloud services infrastructure and simplified regulatory framework for services sector.

The budget also demonstrates government’s intent to build capacity and drive infrastructure development with that it has announced 11% growth in FY27 capex at Rs 12.2 lakh crore. Defence capex is slated to grow by 17% (16% in FY26). Roads and railways capex is projected to grow by 8% and 11%, respectively.

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In addition, Infrastructure Risk Guarantee Fund will be set up to provide prudently calibrated partial credit guarantees to lenders. Establishment of new Dedicated Freight Corridors connecting Dankuni in the East to Surat in the West will further enhance connectivity and logistics efficiency. The proposal to operationalise 20 new National Waterways connecting mineral rich areas, industrial centres, and ports, set up of ship repair ecosystem catering to inland waterways and 7 High-Speed Rail corridors will lead to a broad-based economic growth.

On the other hand, the proposal to restructuring Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) will enhance capital mobilisation and institutional capacity.

Meanwhile, the equity market reacted negatively because of higher Securities Transaction Tax (STT) on futures & options and no LTCG/STCG (long-short term capital gains) relief. However, outlook remains constructive on Indian equities as the earnings growth will see a cyclical rebound in FY27 because of stable macro and supportive policy environment in the form of income tax and GST rate cuts, and 125bps cumulative monetary policy rate cut. The growth in earnings for FY27 would be led by the pick up in loan growth for financials, discretionary spends aided by GST cuts, telecom tariff hikes, stronger non-ferrous metals, and very low base for IT & Staples.

Budget 2026 prioritises fiscal prudence, capacity creation and investment confidence, positioning India for resilient growth despite volatility.