Budget 2026: What to expect on fiscal deficit, defence and infrastructure

India announces its annual budget on Sunday, with the Defence Ministry seeking higher military spending, industry urging cuts in tax rates on ‍market transactions and customs duties, and ​the government planning to ease foreign investment rules.

Below are some measures expected to be in the budget for the fiscal year from April which Finance Minister Nirmala Sitharaman is to present from 11 am (0530 GMT).

Fiscal deficit, government borrowing

Economists expect the budget to focus on cutting government debt to a range of 49 per cent to 51 per cent of gross domestic product, a metric ​closely watched by global investors, by 2031 from 56 per cent.

 

The government is likely to aim for a fiscal deficit at 4.2 per cent of GDP for 2026-27, down from 4.4 per cent this fiscal year. Gross borrowing is expected to rise to between ₹16 trillion and ₹16.8 trillion ($174 billion-$183 billion) from ₹14.6 trillion this year.

 

Defence

The Defence Ministry wants a 20 per cent increase in military spending after a short but deadly conflict with arch rival Pakistan.

New Delhi is likely to ease conditions for foreign investments into defence units. The Federation of Indian Chambers of Commerce and Industry, which has 250,000 companies as members, has suggested setting up defence-industrial corridors and an export-promotion council to meet the country's defence-export target of $5.5 billion by 2029.

Infrastructure spending

Economists expect the government to maintain capital spending around 3.1 per cent of GDP.

Income- and consumption-tax cuts this year constrain ‌the government's ability to significantly increase capital spending ​beyond ₹12 trillion, from this fiscal year's ₹11.2 trillion.

Exports

The Federation of Indian Export Organisations is seeking lower import duties on key inputs for export-oriented industries such as textiles, electronic components and chemicals to encourage domestic manufacturing. The group wants supportive regulatory measures and ‍access to long-term finance as exporters face pressure from President Donald Trump's 50 per cent tariffs on Indian goods entering the US.

Taxes

Tax experts have called for abolishing the securities-transaction tax, ‍levied ‌on equity and ​derivatives trades even if they result in losses.

To strengthen contract ‍manufacturing in India, the lobby group FICCI has urged changes to income-tax rules that hinder ‍the ‍ability of firms ‌such as Apple from supplying machinery to contract manufacturers.