• Source:JND
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Union Finance Minister Nirmala Sitharaman created history on Saturday by presenting her eighth consecutive budget, making her the first Indian finance minister to do so. The Union Budget 2025-26, delivered against the backdrop of a slowing economy, aimed to strike a balance between fiscal consolidation and economic growth.

One of the most anticipated announcements was the long-awaited personal income tax relief, offering much-needed respite to the middle class. Sitharaman declared that salaried individuals earning up to Rs 12 lakh annually will now be eligible for income tax rebates under the new tax regime, alongside a reshuffling of tax slabs to further ease the financial burden on taxpayers. To formalise these changes, she also announced that a new income tax bill would be introduced in Parliament.

Beyond tax reforms, the budget emphasised fiscal discipline, infrastructure spending, rural development, and ease of doing business, setting the stage for India’s economic roadmap in the coming years.

According to Abneesh Roy, Executive Director & Head of Research Committee at Nuvama Institutional Equities, the Union Budget for FY26, presented reflects a careful balancing act. “The finance minister has maintained the government’s commitment to fiscal discipline while making strategic adjustments to support consumption,” said Roy.

‘Govt’s Commitment To Fiscal Prudence’

The Gross Fiscal Deficit (GFD) for FY26 is targeted at 4.4 per cent of GDP, a reduction from 4.8 per cent in FY25, reinforcing the government’s focus on fiscal prudence. Revenue projections appear slightly optimistic, with net market borrowings estimated at Rs 11.5 trillion, in line with market expectations. 

Highlighting FM Sitharaman’s fiscal roadmap, Roy said, “Importantly, the FM laid out the fiscal roadmap for the next 5 years in terms of lowering India’s debt to GDP by 6-7 per cent by FY31. Overall, this Budget reinforces the government’s commitment to fiscal prudence.”

Budget at a glance: 

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Revenue And Taxation Outlook

The gross tax revenue (GTR) is projected to grow by 10.8 per cent YoY, with direct taxes (corporate and personal) expected to expand at 12.7 per cent, while GST collections are forecasted to increase by 11 per cent. However, when adjusted for tax cuts, the implicit growth assumption in direct taxes rises to 17 per cent, making these projections somewhat optimistic.

Non-tax revenues are estimated to grow by 12 per cent YoY, driven primarily by higher dividends from the Reserve Bank of India (RBI).

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Expenditure Priorities: Tilt Toward Consumption

“While overall government spending is set to increase by 7.4 per cent YoY in FY26, its composition signals a preference for boosting consumption over large-scale infrastructure investments,” said Roy. 

  • Capex Spending: The total central government capex is projected to grow at 10 per cent YoY, slightly higher than 8 per cent in FY25. However, within this, spending on roads and railways remains stagnant (0 per cent growth), while defence capex is set to rise by 13 per cent (vs. 4 per cent in FY25).

  • Revenue Spending: Expected to increase by 7 per cent YoY, with salaries and wages growing at just 2-3 per cent (vs. 11 per cent in FY25). Meanwhile, rural spending is budgeted to rise significantly by 16 per cent YoY (vs. 3 per cent in FY25), primarily due to the Jal Jeevan Mission, though key welfare schemes like MNREGA and PM-Kisan remain flat YoY.

  • Social Sector Spending: Allocations for health and education are set to increase by 10-11 per cent YoY, while subsidy expenditure remains unchanged.

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    Ease Of Doing Business And Market Implications

    Abneesh Roy highlights that beyond fiscal measures, the budget strongly emphasises deregulation and improving ease of doing business, particularly for MSMEs. The reduction in bureaucratic hurdles related to permissions, documentation, certifications, and licensing is expected to foster employment growth.

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    From an equity market perspective, sectors driven by increased consumption, such as private banks, insurance, chemicals, pharma, and telecom, are likely to outperform. Meanwhile, industrials, metals, and power sectors are expected to underperform due to modest capex growth. 

    According to Roy, the FY26 Union Budget underscores the government’s commitment to fiscal prudence while making calibrated efforts to sustain demand. While tax relief for the middle class and rural sector spending could stimulate consumption, the relatively modest capex growth suggests a limited fiscal impulse to aggregate demand. The budget’s success will depend on execution efficiency, revenue realisation, and private sector participation in driving economic momentum.