Union Budget 2026: Key Numbers Markets Will Decode
- 31st January 2026
- 12:00 AM
- 5 min read
PL Capital
Summary
As the Union Budget for FY27 approaches, markets are preparing for a data-driven reading rather than headline-grabbing announcements. With fiscal consolidation largely intact, a sustained capex push and selective sector support in focus, investors will decode a handful of key numbers that signal the government’s growth strategy and policy credibility.Mumbai | January 31
As the government prepares to present the Union Budget for FY27, market attention is firmly on the underlying numbers rather than grand announcements. With limited fiscal headroom and a volatile global backdrop, investors are expected to parse the Budget’s numbers closely to assess whether growth can be supported without compromising stability.
Fiscal deficit
The fiscal deficit for FY27 is projected at around 4.3% of GDP, marginally lower than the estimated 4.4% in FY26. While the improvement appears incremental, markets view it as an important signal of continued commitment to fiscal consolidation.
India’s fiscal deficit has steadily declined from a pandemic-induced peak of 9.2% in FY21, and the FY27 Budget is expected to reinforce this glide path. Any deviation from the target would likely be scrutinised unless clearly linked to productive, growth-enhancing expenditure.
Capex vs revex
Capital expenditure is expected to rise to about ₹12.4 trillion in FY27, maintaining levels close to 3.3% of GDP. The emphasis is likely to remain on infrastructure, defence, power, electronics manufacturing and affordable housing.
Markets will look beyond the headline capex number to assess its composition and execution potential. Higher allocations to railways, roads, power transmission and defence manufacturing are seen as critical to sustaining the investment cycle and crowding in private capital.
In contrast, revenue expenditure is expected to moderate to around ₹40.5 trillion, declining to about 10.3% of GDP. A slower pace of revex growth signals restraint in routine spending, including subsidies and administrative expenses. For markets, rising capex alongside controlled revex is viewed as a healthier and more durable growth mix.
Tax and GST assumptions under close watch
On the revenue front, gross tax collections are projected at around ₹43.4 trillion, accounting for nearly 11% of GDP. Direct taxes are estimated at about ₹25.7 trillion, while indirect taxes are expected to contribute around ₹17.7 trillion.
GST collections will also be closely analysed, with growth expected to remain modest at around ₹11 trillion in FY27. Conservative GST assumptions are generally welcomed by markets, as they reduce the risk of fiscal slippage if economic growth disappoints during the year.
RBI dividend offers fiscal cushion
Non-tax revenue is expected to receive support from a higher RBI dividend, estimated at around ₹3 trillion, compared with about ₹2.7 trillion in FY26. A stronger dividend payout provides the government with additional fiscal flexibility, helping fund capital spending without raising taxes.
A higher RBI dividend could also help contain the government’s gross borrowing requirement, a key variable for bond yields, liquidity conditions and overall market sentiment.
Housing and welfare
The Budget is expected to maintain a targeted welfare approach rather than broad-based giveaways. Allocation for the Pradhan Mantri Awas Yojana (PMAY) is seen rising sharply to around ₹542 billion, signalling renewed focus on affordable housing.
Proposals to raise the affordable housing price threshold from ₹45 lakh to ₹70 lakh could improve project viability and expand the buyer base, particularly in urban and semi-urban markets. Meanwhile, MGNREGA spending is expected to remain stable at around ₹860 billion, indicating continuity rather than expansion in rural support.
Sectoral signals that could drive stock-specific action
Beyond the macro numbers, markets will decode sector-level cues. Infrastructure spending on roads and railways is expected to grow by 8–10% year-on-year, while defence is likely to continue seeing high capital outlays in line with indigenisation goals.
Power and utilities will remain in focus, particularly around solar capacity expansion, grid upgrades and possible refinancing of legacy DISCOM debt. Any move to abolish the 2.5% customs duty on LNG imports could also support the broader natural gas ecosystem.
Tax tweaks and precious metals in focus
While sweeping tax reforms appear unlikely, markets will watch for incremental changes. Expectations include possible relief on long-term capital gains, reintroduction of indexation benefits for debt funds and confirmation that Securities Transaction Tax (STT) will not be raised further.
Markets will also watch expectations around GST rationalisation on gold and silver jewellery, where industry bodies have been seeking a reduction in the GST rate from the current 3% to around 1.25–1.5%. While a sharp cut appears unlikely given revenue considerations, even a calibrated move or clear signalling could influence jewellery demand and consumer sentiment amid elevated precious metal prices. Any GST relief on precious metals would need to balance demand support with revenue protection, making this a politically sensitive but closely watched decision.
The market takeaway
For investors, Budget FY27 is less about surprise announcements and more about execution credibility. A steady fiscal deficit path, sustained capex push, realistic revenue assumptions and selective sector support could reinforce confidence in the government’s medium-term growth strategy.
In a year where stability is valued, markets will decode the numbers carefully, because in this Budget, the math may matter more than the message.
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