Union Budget 2026 is set to be presented on Sunday, 1 February, by Finance Minister Nirmala Sitharaman. It marks her ninth budget and the 88th budget in India’s post-Independence history.

Against the backdrop of rising global uncertainties, elevated commodity prices, geopolitical risks, and trade tensions, analysts expect the FY27 budget to continue India’s gradual fiscal consolidation journey while providing headroom for strategic capex and reforms in key sectors.

Domestic brokerage firm Motilal Oswal expects the FY27 Union Budget to mark a pivotal moment in India’s fiscal framework, with the gross fiscal deficit targeted at 4.3% of GDP, down from 4.4% in FY26.

Last year, the union budget prioritized boosting consumption, shifting its focus away from capex, in an effort to revive demand, especially in urban India, which had already shown signs of pickup in economic activity in recent quarters.

Given the emphasis on fiscal discipline, the brokerage does not expect any populist measures or large tax giveaways in this budget. It added that the budget is likely to be framed around a nominal GDP growth assumption of about 10.1%, providing some headroom to balance fiscal discipline with growth support.

Sunrise sectors set for higher capex

However, the brokerage sees scope for an increase in capital expenditure (capex) in non-traditional or sunrise sectors, particularly defence and allied industries, infrastructure-linked manufacturing, pharmaceuticals, power, nuclear, electronics, critical minerals, and labour-intensive sectors affected by trade tariffs.

The roadmap for these allocations was already presented during the winter session of Parliament.

In particular, defence and allied industries are likely to receive heightened focus, building on recent momentum in start-ups and the Centre’s formation of a dedicated committee to nurture allied defence capabilities.

The brokerage added that digital technologies, especially solutions that integrate advanced tech into agriculture, healthcare, and related social sectors, should remain key pillars of reform-oriented allocation.

It also expects the pharmaceuticals sector, leveraging India’s deep R&D talent pool, to be highlighted as a strategic growth engine, with broader science-led competitiveness (notably GCC in science) emerging as a thematic priority.

Moreover, the brokerage noted that traditional focus areas such as defence, nuclear, electronics, and power are expected to retain strong budgetary support as part of the government’s structural reform agenda.

Capex push to continue to support growth

According to brokerage estimates, total expenditure is expected to grow 7% YoY in FY27 to ₹52.9 trillion (or 13.4% of GDP). For FY27, revenue expenditure (revex) is projected at ₹40.5 trillion (or 10.3% of GDP). The subsidy bill is estimated at ₹4.1 trillion (or 1.1% of GDP), with higher allocations for food at ₹2.1 trillion and fertilisers at ₹1.9 trillion.

“We model capex of the Centre to be at ₹12.4 trillion (up 10.3% YoY or 3.1% of GDP) in FY27, led by a 15% increase in defence expenditure over the estimated ₹1.8 trillion spending in FY26. There was a one-time emergency procurement of ₹40,000 crore in FY26,” said Motilal.

Recently, India’s Defence Acquisition Council (DAC) approved capital acquisition proposals worth ₹79,000 crore in its winter session, taking FY26 YTD approvals to ₹3.3 trillion, nearly double the FY26 budgeted capital outlay on defence of ₹1.8 trillion.

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