More Stories

Informist, Sunday, Feb. 1, 2026

 

By Shubham Rana

 

NEW DELHI - Finance Minister Nirmala Sitharaman's ninth Union Budget doubled down on what she had hinted last year--post-pandemic government policies are nearing their end and the focus is shifting towards cyclical and structural steps to support and accelerate broad-based growth.

 

Since the COVID-19 pandemic, Prime Minister Narendra Modi's government has focussed on fiscal consolidation and increasing capital expenditure--steps appreciated by global credit rating agencies and economists. The Budget for 2025-26 (Apr-Mar) started the shift away from these policies, providing income tax breaks to boost consumption and announcing a change in the fiscal goal post to debt-to-GDP from fiscal deficit. This was followed by a cut and rejig in the goods and services tax later in the year to support an economy facing high penal tariffs from the US.

 

On Sunday, Sitharaman presented a Budget that effectively marked the end of the fiscal consolidation era with the fiscal deficit for FY27 seen at 4.3% of GDP, only 10 basis points lower than that projected for FY26. While fiscal consolidation has continued, the pace of reduction in the fiscal deficit for FY27 is the slowest since before the pandemic. The target for FY27 is also higher than the 4.2% of GDP expected by economists and market participants for FY27, albeit by just 10 bps.

 

The government's debt-to-GDP target for FY27 also disappointed with the government starting slowly on its target to lower its debt to 50% of GDP by March 2031, with a band of 100 bps on either side to provide some flexibility. At 55.6%, the targeted debt-to-GDP ratio for FY27 is only 50 bps lower than the target of 56.1% of GDP for FY26 but also 50 bps higher than economists' expectation of 55.1%.

 

"We had expected a bigger push on fiscal consolidation, given next year will have other pressures like the new pay commission," HSBC said in a report. "The fiscal consolidation for FY27 is the slowest in six years. And the budgeted disinvestment, which is a below-the-line funding item, is likely to see the highest rise in six years. The combination of the two means after several years, the fiscal impulse will go from negative to neutral, and this should be good news for GDP growth."

But a slower pace of debt consolidation next year, even if positive for growth, makes the FY31 target that much more difficult to achieve. The government will have to maintain high GDP growth if the debt-to-GDP target is to be met by FY31. For FY27, the government has assumed a nominal GDP growth of 10%, higher than the 8% it had estimated for FY26.

 

The debt-to-GDP ratio will now have to be reduced by 140 bps every year, on an average, if the mid-point of the 49-51% range is to be met by FY31. This will be a rather challenging task with the fiscal space likely to be limited over the next few years, more so with the continuing geopolitical uncertainties.

 

Moody's Ratings, one of the top two global credit rating agencies, said the government's proposed Budget leaves India's sovereign credit profile largely unchanged. Moody's has a long-term credit rating of 'Baa3', the lowest investment grade, with a stable outlook. Any rating upgrade the government may be hoping for will have to wait that much more.

 

"Support for the economy, which includes measures announced in recent months such as GST rationalisation, will lead to an ongoing erosion of tax revenue as a share of GDP that will worsen debt affordability as measured by interest payments relative to revenue," Christian de Guzman, senior vice-president at Moody's Ratings, said in a note Sunday. "Moreover, we do not expect significant progress on debt reduction, which supplants deficit consolidation as the anchor for fiscal policy, leaving our broader assessment of India's fiscal strength intact."

 

Instead of deeper fiscal consolidation, the Budget focused on providing "tactical support" to the economy which faces heightened external headwinds, best exemplified by the 50% tariff on Indian exports to the US. This support comes even as India's GDP growth is projected to grow at 7.4% in FY26, higher than in FY25. The Economic Survey for FY26, released Thursday, projected FY27 real GDP growth at 6.8-7.2%.

 

"Heading into the Budget, Finance Minister Nirmala Sitharaman's task was to balance political pressure to spend with the need to show continued fiscal restraint," Capital Economics said in a report. "On the first point, the government has announced an overarching programme to support the textiles sector which has been badly hit by punitive US tariffs. This includes bundling capital support, worker skilling and working-capital liquidity under a single framework."

 

The Budget focused on scaling up manufacturing in several strategic and frontier sectors--textiles, healthcare, semiconductors, electronics components, rare earth permanent magnets, and containers as also setting up of passenger and freight corridors. A key announcement was of the tax holiday till 2047 to foreign companies setting up global data centre services in India. Sitharaman also announced steps to create "champion" micro, small, and medium enterprises, including a INR-100-billion SME growth fund. These areas are either the ones most affected by the US tariffs or of key global importance, where India has been lagging behind. 

 

"The Budget's push for MSME development, through expanded equity support, liquidity infusions, and credit guarantees, will improve financing access for small businesses and fuel nationwide entrepreneurship," said Vinod Francis, chief financial officer, South Indian Bank. "Structural initiatives like India Semiconductor Mission 2.0, high-speed rail expansions, and targeted aid for manufacturing and emerging sectors promise greater competitiveness, job creation and economic resilience."

 

To ensure the economy fires on all cylinders, the government renewed its focus on the services sector, having focused largely on the manufacturing sector since the pandemic, a strategy that drew criticism from experts. Sitharaman announced setting up of a committee to recommend measures that focus on the services sector as a core driver of Viksit Bharat. "This will make us a global leader in services, with a 10% global share by 2047. The Committee will prioritise areas to optimise the potential for growth, employment and exports," Sitharaman said.

 

Sitharaman also proposed setting up a committee to comprehensively review the banking sector and align it with India's next phase of growth. The government also proposed restructuring of Power Finance Corp. and Rural Electrification Corp. to increase scale and improve efficiency in the public sector non-banking financial companies. 

 

These measures, for both the manufacturing and services sectors, are welcome but fall well short of being called reforms. "The Budget did not sufficiently address concerns around the cost of doing business and investment, particularly measures to attract foreign institutional and direct investment," Saurabh Sanyal, secretary general, Associated Chambers of Commerce and Industry of India, told Informist. Sanyal added while the Budget pegged capital expenditure at INR 12.2 trillion for FY27 and announced new projects such as education hubs, it did not highlight the upgradation of existing infrastructure.

 

For the equity market, the proposal to increase the securities transaction tax on futures and options transactions came as a shock. The Nifty 50 saw its biggest single-day fall in nine months Sunday. The Budget proposes raising the STT on futures contract transactions to 0.05% from 0.02% and on options premium and exercise of options to 0.15?ch from 0.1% and 0.125%, respectively. Sitharaman said the tax was raised to discourage speculative trading.

 

Perhaps the biggest disappointment from the Budget was for the agriculture sector. While Sitharaman announced support to high value crops such as coconut, sandalwood, cocoa, and cashew, the lack of changes to customs duties left the market disappointed. Market participants had widely expected an increase in customs duty on edible oil to deter imports and sops to boost exports of some commodities. Neither materialised.

 

Ombeer Singh Tyagi, vice president, UPL Ltd., said the Budget did not address key concern of the agrochemical industry as it lacked rationalisation in customs duties to support domestic manufacturing. 

 

"The agricultural sector has been more or less ignored and there have been no changes to the customs duty or to the Budget allocation for agricultural commodities." Biren Vakil, founder and chief executive officer, Paradigm Commodity Advisors Pvt. Ltd., told Informist. "The government has not changed the duty structures on agricultural commodities as it is cautious ahead of elections in several states. They did not want to take the risk of rising inflation. In general, the market is not happy with the Budget."  End

 

Edited by Akul Nishant Akhoury

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2026. All rights reserved.