Centre sets the ball rolling on Union budget 2026-27 next month

Starting mid-November, officials led by finance minister Nirmala Sitharaman will consult state finance ministers, economists and industry representatives for inputs, two people aware of internal discussions said on the condition of anonymity. The budget will aim to make the country more self-reliant and prosperous, supported by forward-looking regulations, the people said.

According to one of the two people, the predominant theme of the fiscal year 2027 (FY27) budget is likely to be next-generation reforms, taking inputs from two central committees, both led by former cabinet secretary Rajiv Gauba. While one committee is working on an action plan to achieve developed country status by 2047, the other is studying regulatory reforms in the non-financial sector, the person said. Systemic reforms meant to improve investor sentiment and accelerate the private investment cycle will get special attention in the budget, the person added.

Ahead of next month’s discussions, Union expenditure secretary V. Vualnam on Thursday began consultations with various departments and ministries to finalize the revised estimate for FY26 and the budget estimate for FY27. The exercise will take into account the spending pattern in the fiscal year so far, revenue collection trends including the fiscal implications of the personal income tax rate cut offered this year and the GST relief implemented last month, as well as the effect of cooling inflation on nominal GDP growth and consequently, tax revenue.

Discussions with 12 departments and agencies, including with the ministries of steel, Panchayati Raj and minority affairs, have been completed by 10 October. A ministry schedule showed that as many as 96 meetings are planned with different departments and agencies, to be completed by 10 November.

Once these discussions are over, Sitharaman is expected to begin consultations from the third or fourth week of November.

Besides reforms, Budget FY27 is also expected to reflect other policy priorities outlined by Prime Minister Narendra Modi in his Independence Day speech this year—technology sovereignty, self-reliance across sectors and greater domestic capabilities in fields like defence and overall inclusive growth, the second person added.

Experts pointed out that in view of the uncertainty around US tariffs, measures to support the domestic industry are likely.

“Since the last Union budget, the external situation has moved in an unexpected direction. To support economic growth, the government, therefore, followed up with its income tax relief offered in the FY26 budget with GST rate cuts. It is expected the government will continue to be supportive of growth in the domestic market,” said Sachchidanand Shukla, group chief economist at Larsen & Toubro Ltd.

Fiscal roadmap

“One important point to watch out for in the coming budget would be how the shift from annual fiscal deficit targets to a new fiscal anchor—the debt to GDP ratio—will play out,” Shukla added.

In the FY26 budget, the government said it will keep annual fiscal deficit in each year from FY27 to FY31 such that central government debt comes down from 57.1% of nominal GDP in FY25 to 50±1% by 31 March 2031. That would be a big structural change in the Union budget, which has been setting annual targets for fiscal deficit, the gap between revenue receipts and spending met through borrowing.

According to the finance ministry, this shift from rigid annual fiscal targets towards a more transparent and operationally flexible fiscal standard is a more reliable measure of fiscal performance as it captures the cumulative effects of both past and current fiscal decisions. While maintaining the broad fiscal consolidation path, this strategy will also allow the space for growth-enhancing spending.

Shukla of Larsen & Toubro said a proper disinvestment strategy is the need of the hour, especially for state-owned banks.

“One hopes that the external uncertainties will subside with India and the US agreeing on a bilateral trade agreement which is being negotiated. Once that happens, investor sentiment is expected to get a boost, giving further momentum to private investments,” said Shukla.

Although India remains the world’s fastest-growing major economy, the upcoming budget must address the reality of a fairly complex geopolitical scenario that is continuing to evolve, said Rishi Shah, partner and economic advisory services leader, Grant Thornton Bharat.

Private investments

To spur investments, the Modi government earlier opened up the space sector, has set up a ₹1 trillion fund to support research and development in technology and is currently working on liberalizing the nuclear power sector.

Investments in plant, machinery, factories and intellectual property rights by private non-financial corporations recovered and improved after the pandemic year of FY21 in absolute terms, but stayed nearly steady in FY24. As a share of GDP, it has more or less remained flat at 36-37% of GDP between FY21 and FY23 and further moderated to 33.6% in FY24, official data from the statistics ministry showed.

The expenditure focus will likely centre on three strategic priorities, said Shah. “First, accelerating domestic manufacturing to better integrate India into reorganizing global supply chains. The strategic focus on ‘make in India’ cannot be overstated and may require another push. Second, sustaining the infrastructure investment push—with ₹11.21 lakh crore allocated for infrastructure which remains critical for ensuring inclusive growth across all regions. This also enables competitiveness for all sectors across the economy. Third, supporting our MSME sector, which faces the most direct tariff impact,” said Shah.

Tax reforms

With reforms being on top of government’s agenda, federal policy thinktank Niti Aayog on Friday said in a working paper analysing the Income Tax Act, 2025 that the new law replacing the more than six-decade-old existing law omitted several archaic offences, but it continues to criminalize 35 actions and omissions across 13 provisions, most of which prescribe mandatory imprisonment. Niti Aayog recommended that of these 35 criminal offences identified, 12 should be fully decriminalized and be addressed through civil or monetary penalties alone. The thinktank also said 17 other offences should retain criminal liability but only for fraudulent or mala-fide intent, removing criminal sanctions for good faith procedural lapses.