ECONOMY
Budget sticks to fiscal prudence, focuses on manufacturing, but spooks markets with STT hike
- IBJ Bureau
- Feb 02, 2026
Finance Minister Nirmala Sitharaman’s Union Budget for 2026-27 stitched together a familiar pattern of steady fiscal consolidation, coupled with an unmistakable push on infrastructure and manufacturing. At the same time, the Budget left room for targeted reform measures for finance and industry.
The speech framed the Budget as a Yuva Shakti-driven plan to accelerate growth, upskill citizens and crowd in private investment. The government set out modest but meaningful numerical shifts rather than headline tax giveaways.
For FY26, nominal GDP for FY26 is estimated at around Rs 393 lakh crore, pegged to grow by 8 per cent, according to the government’s first advance estimates. For FY27, the Budget pegs nominal GDP at about Rs 432 lakh crore, representing growth of roughly around 10 per cent.
The fiscal arithmetic shows a continuation of gradual consolidation, with the fiscal deficit for FY26 (RE) pegged at 4.4 per cent of GDP. Fiscal deficit for FY27 is budgeted to narrow down to 4.3 per cent.
Total Central government expenditure in RE FY26 stood at Rs 49.6 lakh crore. The Budget estimates total expenditure at roughly Rs 53.5 lakh crore for FY27, financed by higher market borrowings and stronger tax collections. Net tax receipts for FY27 are estimated at about Rs 28.7 lakh crore.
The government doubled down on capital spending as the principal growth lever. Capital expenditure for FY27 was raised to about Rs 12.22 lakh crore, an 11 per cent increase intended to sustain manufacturing expansion, logistics upgrades and urban transport projects. The stated objective is to use public capex as a catalyst to unlock private-sector investment and jobs.
However, stock markets were unimpressed by the Budget numbers. The Sensex crashed by 1,547 point, or 1.88 per cent to close at 80,722.94, while the Nifty 50 dropped by 495 points or 1.96 per cent to close at 24,825.45 on Sunday.
The primary trigger behind the abrupt market fall was the proposed increase in Securities Transaction Tax on derivatives from 0.02 to 0.05 per cent. Investors were also unenthused with no further cuts in Income Tax.
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