Finance Minister Nirmala Sitharaman presented the Union Budget 2026-27, emphasizing capital expenditure (capex) to drive medium-term growth. The Centre has budgeted ₹12.2 lakh crore for capex, an 11.5% increase over the revised estimates of 2025-26. The fiscal deficit target is set at 4.3% of GDP, a moderation from the previous year's 4.4%. The budget aims for a debt-to-GDP ratio of 50% by 2031. This strategy prioritizes infrastructure and manufacturing to maintain economic momentum while adhering to a path of fiscal consolidation amidst global uncertainties and geopolitical volatility.
Capital expenditure is increased to ₹12.2 lakh crore to sustain public infrastructure-led growth.
The fiscal deficit target for 2026-27 is set at 4.3% of GDP, down from 4.4% in the previous year.
The government aims to reduce the debt-to-GDP ratio to 50% by 2031, with a leeway of 1% above or below.
The 16th Finance Commission (16th FC) has recommended maintaining the vertical tax devolution to States at 41%, a level consistent since 2021. Finance Minister Nirmala Sitharaman announced the government's acceptance of these recommendations in the Budget 2026 speech. Notably, the formula for horizontal distribution was adjusted, resulting in an increased share for five Southern States: Tamil Nadu, Kerala, Andhra Pradesh, Telangana, and Karnataka. The commission also recommended ₹1.4 lakh crore as grants for rural and urban local bodies and disaster management for the fiscal year 2026-27.
Vertical devolution remains at 41% as per the 16th Finance Commission's recommendations.
The horizontal distribution formula was tweaked, benefiting Southern States like Tamil Nadu and Karnataka.
Total grants to states for local bodies and disaster management are set at ₹1.4 lakh crore for FY27.
Exam Points
Devolution rate: 41% of the divisible pool.
Grants for local bodies: ₹1.4 lakh crore.
Beneficiary states: Tamil Nadu, Kerala, Andhra Pradesh, Telangana, Karnataka.
In a strategic move to secure critical mineral supply chains, the Union Budget 2026 announced the establishment of 'Rare Earth Corridors.' These corridors will be set up in mineral-rich states, including Odisha, Kerala, Andhra Pradesh, and Tamil Nadu. The initiative aims to promote the mining, processing, research, and manufacturing of critical minerals essential for high-tech devices, electric vehicles, and defense applications. Currently, India depends heavily on China, which controls over 60% of global rare earth production and 92% of refining capacity. This move aligns with the goal of achieving self-reliance in strategic sectors.
Rare earth corridors will be established in Odisha, Kerala, Andhra Pradesh, and Tamil Nadu.
The initiative targets self-reliance in critical minerals used in electronics, EVs, and defense.
China currently dominates 92% of the global rare earth refining capacity and 60% of production.
Exam Points
States involved: Odisha, Kerala, Andhra Pradesh, Tamil Nadu.
Finance Minister Nirmala Sitharaman introduced significant changes to the taxation of securities and investments in the Union Budget 2026-27. The Securities Transaction Tax (STT) on Futures has been increased from 0.02% to 0.05%, while the STT on Options has been raised to 0.15%. This move is intended to reduce short-term speculative trading and high-frequency trading in the derivatives segment, encouraging retail investors to adopt more measured, long-term investment strategies. Additionally, the budget rationalized taxation on share buybacks, treating them as capital gains, and increased investment limits for non-resident Indians (NRIs).
STT on Futures increased from 0.02% to 0.05% to discourage excessive speculation.
STT on Options raised to 0.15% from previous rates of 0.1% and 0.125%.
The hike aims to curtail retail participation in high-risk derivatives and promote long-term equity investment.
The Union Budget 2026-27 prioritizes the MSME and textile sectors with significant allocation hikes and new policy frameworks. The textile sector saw a 25% jump in allocation, while the MSME sector's funding doubled. Key initiatives include making the TReDS (Trade Receivables Discounting System) platform mandatory for all CPSE purchases from MSMEs to ensure timely payments. A ₹10,000 crore SME Growth Fund will be created to support 'future champions.' For textiles, the budget proposes mega textile parks and the Mahatma Gandhi Gram Swaraj initiative to boost rural employment and promote sustainable, globally competitive products.
TReDS platform usage is now mandatory for CPSEs purchasing from MSMEs to solve payment delays.
A ₹10,000 crore SME Growth Fund has been established to provide micro-units with risk capital.
Textile sector allocation increased by 25% to promote labour-intensive growth and exports.
The Union Budget 2026 has proposed a comprehensive biopharma strategy titled 'Biopharma SHAKTI' with an outlay of ₹10,000 crore over the next five years. The initiative aims to transform India into a global biopharmaceutical manufacturing hub by facilitating the domestic production of biologics and biosimilars. Key components include setting up three new National Institutes of Pharmaceutical Education and Research (NIPER) and strengthening the Central Drugs Standard Control Organisation (CDSCO) to meet global standards. This move addresses the rising burden of non-communicable diseases and seeks to provide affordable, high-quality complex medicines.
Biopharma SHAKTI has a five-year outlay of ₹10,000 crore for domestic biologics production.
The focus is on complex medicines like biologics and biosimilars manufactured from living systems.
Three new NIPERs will be established to boost research, education, and clinical trials.
Exam Points
Outlay: ₹10,000 crore.
Duration: 5 years.
Regulatory body: CDSCO (Central Drugs Standard Control Organisation).
The Union Budget 2026 introduced the Viksit Bharat-Guarantee for Rozgar and Ajeevika Mission (Gramin) (VB-RAM G) Act, 2025, which replaces the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), 2005. The new scheme has been allocated ₹95,692.31 crore for the 2026-27 fiscal year. Additionally, ₹30,000 crore has been set aside to clear liabilities from the previous year's MGNREGS. The government aims to provide 125 workdays to all enrolled workers. However, experts suggest that an outlay of ₹2.3 lakh crore would be necessary to fully meet this commitment for all 8.65 crore active job card holders.
The VB-RAM G Act, 2025, replaces the MGNREGA, 2005, as the primary rural job guarantee.
Total allocation for the new scheme is approximately ₹95,692 crore for FY27.
The government target is to provide 125 workdays per year to all enrolled workers.
In the aftermath of Operation Sindoor, the Union Budget 2026 has allocated a record ₹7.85 lakh crore to the Ministry of Defence, representing 14.67% of the total government expenditure. This reflects a 15.19% increase over the current year's budget estimates. A significant emphasis is placed on 'Aatmanirbharta' (self-reliance), with 75% of the ₹1.39 lakh crore capital acquisition budget earmarked for domestic procurement. Capital expenditure has been raised by 22% to ₹2.19 lakh crore to upgrade military capabilities, including next-generation fighter aircraft, submarines, and smart weapons, while also addressing border infrastructure and veterans' healthcare.
Total defence outlay is ₹7.85 lakh crore, the highest among all ministries.
75% of capital acquisition funds (₹1.39 lakh crore) are reserved for domestic industries.
Capital expenditure is increased by 22% to ₹2.19 lakh crore for modernization.
The Union Budget 2026-27 has increased the allocation for the Education Ministry by 14.21% to approximately ₹1.39 lakh crore. Key highlights include the establishment of five university townships near major industrial and logistics corridors and the provision of a girls' hostel in every district to encourage female participation in STEM education. The budget also focuses on skilling, with a 62% increase in the Skill Development Ministry's budget. A high-powered 'Education to Employment and Enterprise' Standing Committee will be formed to align the services sector with the goals of 'Viksit Bharat.'
Education budget increased by 14.21% to ₹1.39 lakh crore for the next fiscal year.
Five university townships will be established near industrial corridors to link education with industry.
Girls' hostels will be built in every district to promote STEM education among female students.
To boost tourism and generate employment, the Union Budget 2026 announced the development of 15 archaeological sites into vibrant, experiential cultural destinations. These include Lothal, Dholavira, and Rakhigarhi. Additionally, a scheme for the development of Buddhist circuits was proposed for the Northeast region, covering states like Arunachal Pradesh, Sikkim, and Assam. The budget also introduced a pilot scheme to upskill 10,000 guides in 20 iconic tourist sites and the creation of a National Destination Digital Knowledge Grid to document cultural and historic sites. New hiking and bird-watching trails were also announced across various states.
15 archaeological sites, including Lothal and Dholavira, will be developed as experiential destinations.
A Buddhist circuit scheme will be launched for Northeast states like Arunachal Pradesh and Sikkim.
10,000 tourist guides will be upskilled under a new pilot scheme at 20 iconic sites.
The Union Budget 2026 has reduced the allocation for urban development by 11.6%, from ₹96,777 crore to ₹85,522 crore. This reduction has raised concerns regarding the sustainability of essential services in cities facing mass migration and climate change. Within the shrinking budget, a significant portion (33.6%) is dedicated to metro rail projects, which critics argue primarily benefit large cities and middle-class commuters. Funding for flagship schemes like the Pradhan Mantri Awas Yojana (Urban) and the Swachh Bharat Mission (Urban) has seen notable declines, with SBM-U's budget halved to ₹2,500 crore.
Urban development allocation decreased by 11.6% to ₹85,522 crore for FY27.
Metro rail projects account for over one-third (33.6%) of the total urban budget.
Swachh Bharat Mission (Urban) allocation was reduced by 50% to ₹2,500 crore.
The Union Budget 2026 introduced several measures to empower women and persons with disabilities (PwDs). For women, the government announced 'SHE Marts,' which are self-help entrepreneur marts functioning as community-owned retail outlets. This builds on the Lakpati Didi programme to help women transition from credit-linked livelihoods to enterprise ownership. For PwDs, two new schemes were launched: Divyangjan Kaushal Yojana for training in livelihood opportunities and Divyang Sahara Yojana for providing timely access to assistive devices through modern retail-style marts. The Department of Empowerment of Persons with Disabilities saw a 30% rise in allocation to ₹1,669.72 crore.
SHE Marts will be established as community-owned retail outlets for women entrepreneurs.
Divyangjan Kaushal Yojana focuses on skill training for persons with disabilities.
Divyang Sahara Yojana will provide assistive devices through new technology marts.
Exam Points
PwD department allocation: ₹1,669.72 crore.
New schemes: Divyangjan Kaushal Yojana, Divyang Sahara Yojana.
Women's initiative: SHE Marts (Self-Help Entrepreneur Marts).
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