Indian Finance Minister Nirmala Sitharaman unveiled the nation’s 2026-27 budget on Sunday, implementing a strategic pivot toward fiscal restraint following extensive tax concessions implemented last year. The budget framework emphasizes infrastructure development, domestic manufacturing support, and revised fiscal targets while navigating challenges posed by U.S. tariff policies.
The budgetary allocations reveal significant increases in capital expenditure, with infrastructure investment rising 9% to ₹12.2 trillion ($133.1 billion). Defense spending witnessed an even more substantial 20% boost, reflecting heightened global geopolitical tensions. These investments continue the Modi administration’s decade-long emphasis on infrastructure-led economic growth.
Seven strategic sectors received targeted manufacturing support, including semiconductors, data centers, textiles, and rare earth minerals. The government announced dedicated rare earth corridors across four states—Tamil Nadu, Kerala, Andhra Pradesh, and Odisha—building upon November’s ₹73 billion rare earth development scheme. A second semiconductor mission received $436 million in funding to advance equipment production and intellectual property development.
Notably, the budget introduced substantial incentives for foreign cloud companies, offering tax holidays until 2047 for data center investments and global cloud services. This measure aims to accelerate capacity creation in a capital-intensive sector that has already attracted significant investments, including Google’s $15 billion facility announcement.
The textiles sector gained attention through new mega-parks designed to enhance export competitiveness, particularly following the recent India-EU free trade agreement. Additional support emerged through expanded duty-free input limits for seafood exports and customs duty exemptions for lithium-ion battery manufacturing components.
Despite these initiatives, financial markets reacted negatively to increased Securities Transaction Tax (STT) on derivatives trading, causing significant declines during special Sunday trading sessions. Market analysts warned this could increase transaction costs and reduce derivative market volumes.
The budget notably transitioned from rigid annual deficit targets to a broader debt-to-GDP ratio framework, aiming to reduce the ratio from 56% to 50% (±1%) by 2030-31. For the upcoming fiscal year, the deficit is projected at 4.3% of GDP, down from 4.4%, while the debt ratio should ease to 55.6%. This shift provides greater fiscal flexibility while maintaining discipline amid expected GDP growth moderation from 7.4% to a slightly lower pace due to U.S. trade policies.