However, this may not come to fruition if the Union Government chooses a measured approach, as it could be hamstrung by the fiscal deficit, which is still targeted at 4.4 per cent for FY26 as per the previous Budget estimate — as opposed to the 3.5 per cent range in the pre-Covid years. Moreover, the government may choose to avoid straining revenues, given the current global uncertainties, heightened by US President Donald Trump’s recent backing of a bill threatening 500 per cent tariffs on countries buying Russian crude.
Inflation, too, has been steadily falling in the months preceding the Budget, reaching a historic low of 0.25 per cent in October, only to rise slightly to 0.71 per cent in November.
Estimates place inflation in December at about 1.6 per cent, staying well within the RBI’s target of 4 per cent (with a ±2% band). This low-inflation environment, per RBI guidelines, allows scope for monetary easing given that inflation is significantly below the target.
This year’s first Monetary Policy Committee (MPC) meet will take place from February 4 to 6, 2026, following the Budget, and the outcomes of it will be announced on February 6.
The economy has been resilient despite global challenges, with advance estimates forecasting the GDP growth rate at 7.4 per cent. with Q2 growth rate having come in at 8.2 per cent. Projections for FY27 range from 6.7 per cent to 7.5 per cent, factoring in the uncertainty over potential additional US tariffs.
For India to achieve its Viksit Bharat 2047 goal, the country’s GDP needs to grow at about 8 per cent every year in real terms, or 11.4 per cent in nominal terms. So, there is hope among the middle-class taxpayers that further cuts may be in store to boost consumption even further.
Expectations for tax relief
There is speculation — based on the significant tax relief and GST rationalisation provided in the previous year — that the government may continue this trend of further tax relief.
If the Budget were to prioritise taxpayer relief to further boost consumption, it would look to tweak income tax slabs in the new tax regime. TDS rationalisation might reduce rates for simpler compliance. The government is not likely to take another look at GST rate revisions, following the major overhaul in September. But if it does, consumption could get a further boost, likely at the cost of fiscal discipline.
Refinements to tax regimes
With over 75 per cent adoption, the new tax regime may see further promotion. The government has been trying to make it more attractive than the old regime, suggesting a possible intent to phase out the old tax regime and its complexities — either by encouraging voluntary adoption even further or by discontinuing the old regime entirely.
More Like This
Published on January 9, 2026
