Budget 2026-27 Seeks Fiscal Balance Amid Rupee Volatility and Industrial Stagnation
By Cygnus | 02 Feb 2026
Summary
Finance Minister Nirmala Sitharaman’s ninth consecutive Union Budget for 2026-27 aims to sustain India’s capital expenditure momentum while navigating a weakening rupee and subdued manufacturing activity. With a ₹12.22 lakh crore capital expenditure target and a narrowed fiscal deficit of 4.3%, the government continues its “Kartavya” (duty-led) growth strategy. However, a sharp intraday sell-off in equity markets and a surprise hike in Securities Transaction Tax (STT) on derivatives have raised questions about near-term trade-offs between fiscal discipline and investor sentiment.
NEW DELHI — The Union Budget for 2026-27 laid out a fiscal roadmap prioritising infrastructure, frontier manufacturing and long-term productivity, while reaffirming a commitment to reduce the fiscal deficit to 4.3% of GDP for FY27, down from 4.4% last year.
Capital expenditure was held at a robust ₹12.22 lakh crore, keeping the state firmly in the driver’s seat of economic growth. Yet markets responded with a sharp sell-off, driven largely by an unexpected hike in STT on futures trading — a move widely seen as an attempt to cool speculative excess.
The Rupee-Growth Paradox
While the Economic Survey 2026 projected a real growth range of 6.8% to 7.2%, the rupee has faced intense pressure. On Monday (Feb 2), the currency showed signs of stabilization, closing at 91.51 per dollar after touching a record low of 92.02. Analysts argue that shifting from consumption-led expansion to supply-side competitiveness will take time to translate into currency strength.
Manufacturing and the ‘Biopharma SHAKTI’ Pivot
A defining feature of the budget is the push toward high-value manufacturing.
- Biopharma SHAKTI: A ₹10,000 crore outlay over five years to build an ecosystem for biologics, including 3 new National Institutes of Pharmaceutical Education and Research (NIPER) and 1,000 clinical trial sites.
- ISM 2.0: The next phase of the India Semiconductor Mission focuses on equipment manufacturing and Indian-owned IP, backed by a ₹40,000 crore electronic components outlay.
Despite these ambitions, the employment challenge remains. The manufacturing growth estimate of 7.4% contrasts with struggling labour-intensive clusters, making the ₹10,000 crore Champion MSME fund a critical component for broad-based job creation.
Why This Matters
- Market Friction: The hike in STT on Futures (to 0.05%) and Options (to 0.15%) signals a policy shift to discourage high-leverage retail trading in favor of long-term capital formation.
- Digital Hub Ambition: A tax holiday until 2047 for foreign cloud providers operating through Indian data centres strengthens India’s bid for data sovereignty.
- New Tax Framework: The introduction of the Income Tax Act 2025 (effective April 2026) aims to consolidate tax laws, though the standard deduction currently remains at ₹75,000.
Sectoral Shifts at a Glance
| Sector | Key Budget Impact |
|---|---|
| Pharma/Biotech | ₹10,000 Cr Biopharma SHAKTI; focus on biologics. |
| Electronics/Semi | ISM 2.0; Outlay increased to ₹40,000 Cr for components. |
| Infrastructure | ₹12.22 L Cr capex; 7 new high-speed rail corridors. |
| Derivatives | STT hike (Futures to 0.05%, Options to 0.15%). |
| Salaried Taxpayers | Tax slabs unchanged; Standard deduction stays at ₹75,000. |
FAQs
Q1. What are the new STT rates for F&O?
From April 1, 2026, STT on futures rises from 0.02% to 0.05%, while STT on options premium and exercise both increase to 0.15%.
Q2. Is there any relief for middle-class taxpayers?
Income tax slabs remain unchanged. However, the government has reduced Tax Collected at Source (TCS) for foreign education and medical remittances from 5% to 2% for amounts above ₹10 lakh.
Q3. What is the GDP growth outlook?
The Budget projects 10% nominal GDP growth, while the Economic Survey estimates real growth between 6.8% and 7.2% for FY27.
Q4. Why did markets react so negatively to the Budget?
Investors were caught off guard by the sharp increase in STT on derivatives trading, which directly impacts market liquidity. Combined with high government borrowing and cautious global sentiment, the move triggered a broad sell-off during the special Sunday session.
Q5. Does the high capital expenditure guarantee faster economic growth?
Not necessarily. Public spending can stimulate demand, but sustained growth depends on private sector investment following government projects. If “crowding-in” remains weak, growth may slow despite record capex.
Q6. How does this Budget affect inflation and interest rates?
Fiscal consolidation (targeting 4.3% deficit) supports inflation control in the medium term. However, the record ₹17.2 lakh crore borrowing target could keep bond yields elevated, influencing the Reserve Bank’s future rate decisions.
