The longest-serving Finance Minister in continuous office, Nirmala Sitharaman, presented her record ninth consecutive Union Budget on 1 February. Looking back, Morarji Desai had presented the Budget ten times, and P. Chidambaram nine times, but none of them had presented the Budget nine times consecutively. So far as Sitharaman’s Budget Speeches go, this was one of the shorter ones ~ she spoke only for 1 hour and 25 minutes, as against a record-breaking speech of 2 hours 39 minutes in 2020.
The FM’s address outlined the government’s fiscal roadmap for FY 2026–27, including spending plans, tax proposals, and key policy priorities. As expected, the Budget Speech and budget proposals were lauded by the PM, and the who’s who of the ruling party, but derided by opposition politicians. Since this was the first budget prepared in Kartavya Bhavan – the new address of the Finance Ministry – the FM drew inspiration from three kartavyas, the first being the acceleration and sustenance of economic growth, by enhancing productivity and competitiveness, and also building resilience to volatile global dynamics. An important part of this kartavya was the building of infrastructure, pursuant to which, Budget 2026 has raised the capital expenditure target to Rs 12.2 lakh crore from Rs 11.2 lakh crore for FY 25-26, which is slightly iffy, given the fact that the capital expenditure target of the current FY would remain unmet.
The FM has lauded herself for restricting fiscal deficit for FY 25-26 to 4.4 per cent of GDP, as against a target of 4.5 per cent; here it is to be mentioned that this milestone was achieved because receipts and expenditure fell short by around Rs.1 lakh crores ~ which was the case last year also. In this perspective, the narrowing down of the fiscal deficit to 4.3 per cent of GDP in FY 26-27, may be at the cost of a shortfall in budgeted expenditure. Concerningly, there was a fall in revenue receipts for FY 25-26 ~ tax receipts estimated at Rs 28.37 lakh crores, fell short by Rs.1.63 lakh crores.
Collection of Personal Income-tax missed the target by Rs.1.26 lakh crores, and collection of GST fell short by Rs.1.32 lakh crores ~ which was expected, given the reduction in tax rates. However, Personal Income-tax collections are set to exceed Corporate Tax collections by more than Rs.2 lakh crore or 18 per cent ~ not a very healthy development. The total Budget size is pegged at Rs 53.5 lakh crore, an increase of Rs.4.83 lakh crores, or roughly 10 per cent, over the current year’s budget. Budget 2026 comes at a time when GDP growth is scaling new heights, while inflation is at a historic low.
FM Sitharaman has done well to try to preserve this momentum, so there is nothing pathbreaking in the Budget. That may have been the reason, in addition to increase in STT rates, for the steep fall in share prices on Budget Day. Briefly put, with Viksit Bharat as the overarching theme, the stated objective of the Budget is to place India on the path towards financial stability, while enabling businesses to be future ready ~ rising up to the challenges and opportunities of AI adoption, and making up the all-round deficit of talent, infrastructure, governance, and trust. The Income tax Act, 2025 will come into effect from 1 April 2026. However, concerningly, applicable Income Tax Rules and Forms have not yet been notified.
The Budget has amended the Income-tax Act, 2025, even before its coming into force, mainly with a view to automate and accelerate processes. For example, penalty proceedings will be concluded along with assessment proceedings, and many penalties have been replaced with fees that will be charged automatically. The Budget proposes a Foreign Assets of Small Taxpayers ~Disclosure Scheme 2026, aimed at students, young professionals, tech employees and relocated NRIs. The Scheme provides a one-time opportunity to disclose foreign income and assets. Hopefully, this Scheme may fare better than the 2015 Scheme, given the enhanced international co-operation in tax matters.
There is good news for tourists and students studying abroad. TCS rates on overseas tour programme packages has been reduced uniformly to 2 per cent, from the current 5 per cent and 20 per cent. TCS on remittances for education and medical purposes under the Liberalized Remittance Scheme (LRS) has been reduced from 5 per cent, to 2 per cent. Given the disturbed conditions in our neighbourhood, Budget 2026 proposes an expenditure of Rs.7.84 lakh crore (US$85.5 billion) for defence ~ up 15 per cent, over the last year, amounting to 14.7 per cent of total government expenditure, translating into 2.01 per cent of GDP. In a welcome development, Rs.2.2 lakh crore has been earmarked specifically for defence modernisation ~ a 22 per cent increase over last year.
The Budget has made a significant provision for upgradation and expansion of healthcare infrastructure, medical education and the pharma sector with the aim of making India a global hub for allied healthcare professionals and biopharma manufacturing. To this end the Budget provides significantly higher funds to flagship programmes like Pradhan Mantri Ayushman Bharat Health Infrastructure Mission (PM-ABHIM), Pradhan Mantri Jan Arogya Yojana (PM-JAY) and National Health Mission (NHM). A praiseworthy initiative is the skilling of middle level professionals; Allied Health Professional Institutes in 10 key disciplines will be set up and upgraded to create nearly one lakh skilled professionals over the next five years; a focused programme will train 1.5 lakh geriatric caregivers; the Indian Institute of Creative Technologies in Mumbai will be supported to create animation, visual effects, gaming and comics (AVGC) content creator labs in 15,000 secondary schools and 500 colleges; the number of veterinary professionals will be raised to over 20,000 by launching a credit-linked capital subsidy assistance scheme for the establishment of private-sector veterinary and para-veterinary colleges, animal hospitals, diagnostic laboratories and breeding facilities.
There are other upskilling projects, e.g., facilitating professional institutions like the Institute of Chartered Accountants of India (ICAI), Institute of Company Secretaries of India (ICSI), and Institute of Cost and Management Accountants of India (ICMAI) to design short-term, modular courses and practical tools to develop a cadre of “Corporate Mitras”, especially in Tier-II and Tier-III towns, who can be employed in MSMEs, and also a project to upskill 10,000 tourist guides across 20 major tourist destinations. At the policy level, the Government will set up a high-powered “Education to Employment and Enterprise” standing committee which will align education to industry needs.
Some special schemes for the benefit of coastal States are envisaged; a scheme to benefit coconut growers and a push for rare earths, that are currently being mined in Kerala, TN, Odisha and Andhra. Another proposal is to make fish catches in EEZs and high seas free of duty, and classifying the sale of such fish catch in any foreign port as export. It is but a coincidence that most of such states are poll bound, or ruled by the BJP and its allies. The Budget welcomes foreign investment by a 31-year tax holiday on data centres, and a 5-year tax holiday to foreign companies supplying capital goods and equipment, and also permission to foreigners to invest in the share market.
Worryingly, sharply increasing interest payments of Rs.14.04 lakh crore (last year Rs.12.74 lakh crore), would consume more than 26 per cent of the total budget, making them the second biggest item of expenditure. Thankfully, projected debt receipts of Rs.15.13 lakh crore, falls short of the Budget Estimate of Rs.15.66 lakh crores. However, continuing an increasing trend, expenditure of Rs.17.72 lakh crore and Rs.5.49 lakh crore, has been budgeted for Central Sector Schemes and Centrally Sponsored Schemes, respectively. The Fifteenth Finance Commission had recommended a review of Central Schemes, with axing of unviable ones. However, no review is in sight, and a host of new schemes have been announced in the current Budget.
The Outcome Budget for 2026-27 is a lengthy document of 302 pages which gives the financial outlay, outputs and outcomes statement, output and outcome indicators, and specific output and outcome targets but somehow, omits to provide clarity on the achievement of Budget targets. Clearly, a brake on profligacy is urgently required. Government economists sitting in the rarefied environs of their offices, who increase the budget size every year, could well heed the words of US economist Martin Feldstein: “Increased government spending can provide a temporary stimulus to demand and output but in the longer run higher levels of government spending crowd out private investment or require higher taxes that weaken growth by reducing incentives to save, invest, innovate, and work.”
(The writer is a retired Principal Chief Commissioner of Income-Tax)