A critical analysis of the Budget 2026 - 27

A critical  analysis  of  the  Budget  2026 -- 27 

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Written by Akhilesh Jha, IPS, Gold Medallist and Currently honorary Director of International Police Academy, Brussels, Belgium 

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 Introduction 

The Union Budget 2026-27, presented by Finance Minister Nirmala Sitharaman on February 1, 2026, focuses on infrastructure, manufacturing, and simplifying the tax regime. The Budget  is pegged  at ₹ 53.5 lakh crores. The  Budget  basically  stresses upon  continuity  , rather than  drastic  overhaul. 

Below are the key features and highlights:

1. Major Foreign Investment Reforms

A significant focus of this budget is  to attract global capital by modernizing foreign investment rules:

 ( a)  Portfolio Investment Scheme (PIS): Individual investment limits for Persons Resident Outside India (PROI) in listed Indian companies have been doubled from 5% to 10%.

 ( b) Aggregate Limits: The overall investment cap for these investors has been raised from 10% to 24%.

 ( c)  Regulatory Review: The government announced a comprehensive review of the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, to make them more "user-friendly" and aligned with modern economic priorities.. 

   The Government  relaxed  these  rules  for  Persons of Indian  Origin  ( PIO) because last year  in 2024 - 25 , about  $3.9 billion were  taken  away  from  FPI. Secondly,  about  eight  thousands  Indian  billionaires parked  their  money  into  tax havens like  Dubai or safe places like  in London  and Newyork..Secondly  , the capital  formation  rate  has  not  got push from  the  present  30% ( China  more  than  40%)

2. Infrastructure & Connectivity

The government continues its capex led  strategy to drive growth:

 (a)  Capital Expenditure: The capex target has been raised to ₹12.2 lakh crore for FY27, a 9% increase from the previous year.

 ( b)  Railways: The budget proposes seven new high-speed rail corridors to act as growth connectors between major cities.

 ( c)  City Economic Regions (CER): An allocation of ₹5,000 crore per city for cities with populations over 5 lakh (Tier-2 and Tier-3) to transform them into regional growth hubs. This has  been  necessitated  because  India  has  witnessed rapid  growth  in urbanization  .But  these  urban  centres  lack basic  amenities. The  budget  aims at  providing  basic  amenities  and  facilities  in these  centres. 

 ( c)  Infrastructure Risk Guarantee Fund: A new fund has been  created to offer partial credit guarantees to lenders, encouraging private sector participation in large projects.

3. Taxation & Ease of Living

 (a)  New Income Tax Act, 2025: A completely modernized tax code will come into effect from April 1, 2026, aimed at reducing litigation and simplifying compliance.

 ( b)  Remittance & Travel: Tax Collected at Source (TCS) on overseas tour packages and remittances for education/medical purposes has been slashed to 2% (down from 5% and 20% respectively) 

 ( c) Customs Duty Cuts  : Basic customs duty on 17 essential drugs (including cancer medicines) has been exempted.

   ( d)  Electronics: Duties on aircraft parts, microwave parts, and EV battery inputs have been reduced, making these items cheaper.

 (e)  Costlier Items: Luxury watches, imported alcohol, cigarettes and pan masala are set to become more expensive.

4. Manufacturing & Technology

  MSME Support: A ₹10,000 crore SME Growth Fund was introduced to help small businesses  to become future champions.

 Semiconductors & AI: Launch of ISM 2.0 to bolster the semiconductor ecosystem. The budget also introduced a tax holiday for data centres serving foreign customers until 2047.

 (a)  Orange Economy: Specific measures were announced to boost India’s creative industries (the orange economy ), including content creator labs in 15,000 schools.

5. Fiscal Indicators

 Fiscal Deficit: Targeted at 4.3% of GDP for FY27, down from 4.4% in the previous year.

 

( 6) Critical Analysis 

It is hoped that  the  Budget would  address the  high  tariffs imposed by the US and growing trade  deficits with  China which  reached to $116 billion. 

Secondly  , the  budget  aims to increase  private  sector  investment. This   would  offset  the  loss  incurred  on account  of persistent  outflow  of Foreign Portfolio Investment ( FPI) and  worrying  trend  among  the Indian  billionaires to park their  wealths in Dubai  , Singapore  or London.  

Thirdly  , the  focus  on MSME would  tackle  the  youth  unemployment which  has  increased  to 17% 

Fourthly  , critics  point out major  reduction in the  spending in critical  sectors  like Rural  development  , agriculture,  education,  health and  Jal Jeevan  Mission would  put  a break  upon the  growth  and  development  of  agricultural  sector and  rural  development 

Fifthly , MGNREGA  was  replaced  by G - RAM which promises 125 days of  work  in a year. The allocation would  need ₹2 lakh crores , far exceeding  ₹ 95000 provided  in the  Budget.  Moreover  , the provision  of  60:40 for the centre and  states  as the provision for  the new poverty  alleviation  programme would  further  complicate because  of the financial resource crunch  among  states.  

( 6) Critics  also  point  out  that  there  is need  to  increase  allocation  in defence  budget  looking  into  the  China - Pakistan  axis  . It must  be  noted  that  China  spends  $ 314 billion  against  India 's $84 billion  per annum.  

To conclude  , although  Share market  did not welcome  the budget  in a positive  way  because  of the increase in STT ( Securities Transaction Tax ) , the  Budget follows a  pattern of  stability  , investment and  credibility.