India’s Union FY27 Budget: A Pragmatic Blueprint That Prioritises Stability over Stimulus

When Finance Minister Nirmala Sitharaman delivered her ninth Union Budget on Sunday, continuity not disruption was the dominant theme. In a global environment defined by disinflation, trade fragmentation, and persistent capital volatility, India’s FY27 fiscal plan steered clear of populist overtures and opted instead for cautious optimism, underpinned by credible fiscal arithmetic and long-haul institutional investments. For investors, the budget offers neither a consumption pop nor a reform bonanza but it reinforces the government’s commitment to macroeconomic stability and capital expenditure discipline. The FY27 budget remains a capex forward one with increased outlays, but little changes to the tax laws to boost consumption. 

Fiscal Math: Measured Consolidation with Capex at the Core

The budget pegs total expenditure for FY27 at INR 53.47 trillion, up 7.7% yr/yr, slower than the assumed 10.5% nominal GDP growth. The fiscal deficit is projected to fall to 4.3% of GDP, a marginal improvement from 4.4% in FY26 and a meaningful step towards the 3.0% target by FY31. Meanwhile, the debt-to-GDP is forecast to decline from 55.6% to around 50% over the next five years, glacial progress, but directionally sound. Crucially, capital expenditure (capex) is budgeted to grow 11.5% yr/yr to INR 12.22 trillion, representing 22.9% of total spending. Revenue expenditure, in contrast, is set to rise just 6.6%, reinforcing New Delhi’s longstanding infrastructure-led growth thesis. Interest payments, however, remain an overhang rising to INR 14.04 trillion, they now consume over 25% of total expenditure and nearly 40% of tax revenues, underscoring the structural cost of persistent fiscal deficits. 

Table 1: Key FY27 Budget Metrics 

Revenue Assumptions: Conservative, Yet Contingent

The government projects total receipts (net of borrowings) at INR 36.52 trillion, a 7.2% increase yr/yr deliberately lower than nominal GDP to reflect fiscal prudence. Tax revenue is forecast at INR 26.02 trillion, with corporate and personal income tax expected to rise 11.1% and 10.9%, respectively, both reasonable, if formal sector profitability sustains. GST collections are projected at INR 10.19 trillion, up 6.3%, indicating modest expectations despite rate simplifications and compliance measures enforced in September 2025.  Non-tax revenues, including a robust RBI dividend of INR 3.05 trillion, provide a buffer. Meanwhile, disinvestment targets have been ambitiously revised upwards to INR 800 billion, suggesting a pivot to asset monetisation over politically sensitive privatisations. Whether this materialises will depend on market appetite and administrative delivery. In the past, the government has failed to meet its disinvestment and asset monetisation targets. 

Employment and Services Strategy: Structural Bet, Limited Payoff

The most prominent thematic pivot in the budget lies in the government’s employment thinking. Instead of headline job targets, the finance minister proposed a Standing Committee on Education, Employment and Enterprise, a body meant to track skill mismatches and forecast labour market shifts, particularly those driven by AI. The shift to services-led job creation is unmistakable. From healthcare and tourism to content creation and biopharma, sectoral bets abound:

• Rs 1.07 trillion for the Health Ministry (+10% yr/yr), including funding to train 100,000 allied health professionals and 150,000 caregivers.
• Rs 100 billion for Biopharma SHAKTI over 5 years to move India up the biologics value chain.
• Investment in the “orange economy” (VFX, animation, gaming) with 15,000 schools and 500 colleges designated for content labs.
• Expansion of tourism via a national hospitality institute and training of 10,000 tourist guides.

The ambition is commendable, particularly in labour-intensive, exportable services. Yet the execution capacity and job absorption potential of these sectors remain unproven. For investors, the takeaway is that services, not factories are now India’s chosen employment engine, with implications for urbanisation, consumption, and workforce mobility. In our view, despite the increased outlay for the Orange economy and the health ministry the funding remains low and structural constraints continue to persist. Delivery on this front will be limited. 

Ministerial Outlays: Defence, Infrastructure, and Water Lead the Pack

The budget preserves sectoral priorities with defence receiving INR 7.85 trillion, including a 17.6% jump in capital expenditure, a clear signal of strategic focus amid tensions with China, Pakistan and now Bangladesh. Road and railway infrastructure combined receive INR 5.9 trillion, reinforcing physical connectivity as a driver of productivity. Water is a new star: Jal Jeevan Mission spending quadrupled to INR 676.7 billion, a dramatic jump that acknowledges past under-execution. Water resources allocations more than doubled to INR 948.1 billion, marking a shift in development prioritisation toward sustainability. Housing saw an aggressive scale-up: Rural housing outlay rose 69% to INR 549.2 billion; urban housing jumped 179% to INR 220.3 billion. These allocations support rural employment and real estate-linked growth but actual impact will depend on state capacity and implementation.

Table 2: Key Ministerial Outlays 

Table 3: Key Scheme Outlays 

Tax Policy: Narrow Adjustments, Wider Implications

The budget refrained from sweeping tax reforms but introduced several notable tweaks.  Securities Transaction Tax (STT) was hiked by 50% on options and 150% on futures, targeting speculative retail activity. This comes on the back of increased losses suffered by the retail investor while investing in derivates in recent years. Buyback tax arbitrage was closed; promoters now face a 22–30% levy, nudging companies toward dividends. Minimum Alternate Tax (MAT) was cut to 14% but credit accumulation ceased an important move for capital-heavy industries, altering tax strategy for infrastructure and utility firms. Tax relief on foreign education and medical payments via reduced TCS rates offers minor cash-flow support to affluent households. While incremental, these changes reflect a nudge-based approach to compliance and behavioural correction, not a structural overhaul. For institutional investors, the STT hike may be a liquidity dampener in derivatives markets.

Subsidy Compression and Welfare Realignment

Total subsidies were trimmed by 3.1% to INR 4.55 trillion, with the most significant cut in fertiliser subsidies (down 8.4%). While this signals intent to rationalise, it sidesteps the politically challenging yet economically necessary reform of urea pricing and distribution, long recommended by expert panels. The new employment scheme, the VB-GRAM G,  gets INR 956.9 billion, replacing MGNREGA as the primary rural employment support. But the residual MGNREGA budget was slashed, risking transitional pain if the new scheme falters. Meanwhile, other notable schemes also saw increased outlay. The Viksit Bharat Rozgar Yojana receives INR 200.8 billion to subsidise youth hiring. Education spending rises to INR 1.39 trillion (+14.2% y/y). Agriculture and food distribution see muted increases, reflecting a pivot from subsidy to investment, but risking rural demand softness.

Table x: Key Subsidy Outlay (INR bn)

Financial Sector and Capital Markets: Structural Nudges, Not Overhaul

The budget signals reforms via a High-Level Committee on banking to propose structural changes. Portfolio investment limits were raised from 5% to 10% and municipal bonds incentivised with INR 100 billion in support. These are incremental steps toward market deepening and urban financing but without accompanying institutional reforms (e.g., municipal credit ratings, governance upgrades), impact may be limited.

Outlook 

Yet the budget's technocratic restraint failed to impress all corners. Opposition parties seized on the absence of bold reform or meaningful consumption support, casting the Budget as underwhelming at a time when the economy needs confidence, not caution. Congress leader Rahul Gandhi branded it “blind to India’s real crises,” accusing the government of ignoring unemployment, rural stress and industrial slowdown.  Regional leaders such as Mamata Banerjee went further, calling the plan “directionless and anti-people,” while some economic commentators noted that rising interest burdens and sluggish tax buoyancy leave limited fiscal space for counter-cyclical manoeuvres.

In our view, India’s FY27 budget does not excite but it reassures. For foreign investors the message is one of policy continuity, fiscal discipline, and sectoral signalling rather than big-bang reforms or pre-election giveaways. The capex push, services-led employment strategy, defence build-up, and measured subsidy trimming are all positives. But the lack of meaningful consumption support, slow fiscal consolidation, and continued dependence on RBI dividends and disinvestment reflect the constraints of fiscal space and political economy. The budget plays it safe but in volatile global times, that may be the only prudent path. Investors should not expect acceleration but they can bank on durable macro stability and selective reform momentum. The Budget is expected to be passed in parliament by end of February with minimal changes, in our view.