Synopsis:- Union Budget 2026 is likely to target 8.5–9% growth, boost capital expenditure to ₹12–12.2 lakh crore, and lower the fiscal deficit to 4–4.1%. With stable taxes, MSME and export support, selective PLI expansion, and asset monetisation, the Budget aims to sustain growth while managing global uncertainties.
The upcoming Union Budget 2026 is generating significant anticipation as India navigates a challenging global economic landscape. According to Sonal Badhan, Economist at Bank of Baroda, the government is likely to set ambitious yet realistic targets while maintaining fiscal discipline.
Growth Targets and Fiscal Discipline
The Budget is expected to project an economic growth rate of 8.5-9% for the next financial year. This optimistic forecast comes alongside a substantial increase in capital expenditure, which could reach Rs 12-12.2 lakh crores. The government appears committed to meeting its fiscal deficit target of 4.4% for FY26, with plans to reduce it further by 30-40 basis points to 4-4.1% in the following year. The nominal GDP assumption is pegged at around 10%, providing a foundation for these projections.
One encouraging sign is that the government has already achieved approximately 60% of its budgeted capital expenditure target by November 2025, demonstrating strong execution capabilities.
Tax Policy: Status Quo Expected
Don’t expect major changes in direct or indirect taxes this year. Last year’s Budget and the GST 2.0 rationalisation already addressed most tax-related concerns. The focus has shifted from tax cuts to strategic sectoral support.
Support for MSMEs and Exporters
Given the turbulent global economic environment, the Budget is expected to prioritize Micro, Small, and Medium Enterprises (MSMEs) and export-oriented sectors. The government may announce an interest subvention scheme to provide financial relief to these crucial sectors.
Further customs duty rationalisation is also on the cards. After reducing customs duty slabs to eight last year, additional raw materials may see duty reductions, lowering the average customs duty rate. These measures, combined with potential Free Trade Agreements (FTAs), aim to keep India’s export momentum strong despite global headwinds.
Monetary Policy and Private Investment
The Reserve Bank of India is expected to cut policy rates by another 25 basis points in its final FY26 policy to support growth. The central bank’s GDP forecast of 7.3% aligns closely with the first advance estimate of 7.4%.
Private investment, which has been selective recently, shows signs of revival. To sustain this momentum, the government’s Production Linked Incentive (PLI) scheme may undergo modifications.
Innovation and Future-Ready Sectors
A significant development could be the announcement of a separate PLI scheme dedicated to Research and Development. Currently, R&D support is embedded within individual industry schemes. A standalone R&D PLI could attract innovation across multiple sectors.
The government may also expand PLI coverage to include new-age sectors like artificial intelligence, space exploration, and robotics, aligning with the Atmanirbhar Bharat vision and boosting foreign direct investment.
Managing Risks
While external headwinds remain a concern, Badhan emphasises that these rapidly evolving challenges must be addressed adaptively. The combination of more FTAs, declining customs duties, and targeted support schemes will be crucial in maintaining India’s growth trajectory. Asset monetisation is expected to continue playing a larger role than disinvestment in government revenues, a trend that began in FY26 and will likely persist.
Conclusion
Overall, Union Budget 2026 is expected to balance growth ambition with fiscal prudence. Higher capital spending, stable taxes, and targeted support for MSMEs, exports, and innovation-led sectors could sustain economic momentum. Continued asset monetisation, selective PLI expansion, and accommodative monetary policy should help India navigate global uncertainties while strengthening long-term competitiveness.
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