The Budget for FY27 is set to be presented in less than 24 hours from now. With the clock ticking closer to the speech, expectation is running high across households, industry and markets on what the Finance Minister, Nirmala Sitharaman will announce.
From tax relief and inflation control to fiscal consolidation and a renewed push to capital expenditure, the Finance Minister’s announcement in the parliament tomorrow will be closely watched.
Given that global trade pressures are mounting and domestic consumption needs support, key sectors such as defence, automobiles, agriculture and MSMEs are firmly in focus this Budget season.
1. Personal tax relief tops consumer expectations
Personal income tax relief remains the most direct consumer ask after major tax reform announced in the previous budget. Under the new tax regime, the government has raised the tax-free income threshold to Rs 12 lakh, in the Union Budget 2025. There is a buzz about joint taxation for couples too.
2. Households look for stability in food, vegetable prices
Containing price swings in tomatoes, onions and potatoes (TOP) is another major expectation tied to household budgets. All eyes would be on the measures taken to keep inflation and food prices stable.
3. Fiscal Deficit target set at 4.4% for FY27
Gross Fiscal Deficit (GFD) for FY27 is likely to be retained at 4.4% of GDP in FY27, according to Nuvama. The Union government has achieved a fiscal deficit of 4.8% in FY25 and has set a target of 4.4% for FY26. Analysts believe the government will achieve the FY26 target as well.
4. India targets 50% debt-to-GDP by FY31
India moved from using the fiscal deficit to using the debt-to-GDP ratio as the main anchor for fiscal policy. It set a target to reduce the debt-to-GDP ratio to around 50 ± 1 % by FY2030-31.
Kotak believes fiscal consolidation can proceed at a slower pace, with a gradual reduction in the fiscal deficit of about 10–20 basis points each year. “We expect the fiscal deficit to be 4.3% of GDP in FY27, supported by higher tax revenue growth, moderate growth in government spending, and steady non-tax revenue.”
5. Government likely to step up capex
Capital expenditure is expected to regain momentum in FY27, with the government likely to step up its capex push after a subdued FY26 marked by fiscal constraints. Central government capex is projected to grow by around 13% year-on-year, supported by a pause in fiscal consolidation and improved revenue visibility.
Motilal Oswal expects the Centre’s capital expenditure at Rs 12.4 trillion in FY27, a 10.3% year-on-year (YoY) increase, accounting for 3.1% of GDP, driven mainly by a 15% rise in defence spending over the estimated Rs 1.8 trillion spent in FY26.
6. Defence allocation in focus
As the capex is expected to grow, allocation for defence is in focus amid the Make in India push and after ‘operation sindoor’.
FY26 saw a one-time emergency defence procurement of Rs 40,000 crore, along with the Defence Acquisition Council’s approval of capital acquisition proposals worth Rs 79,000 crore during its winter session, taking total defence approvals in FY26 to around Rs 3.3 trillion—nearly double the FY26 budgeted defence capital outlay of Rs 1.8 trillion.
Kotak expects capex growth at 9%, with a strong focus on defence spending, which it expects to grow by 20%.
7. Tariff import sectors in focus
US tariff-hit sectors such as textiles and apparel, seafood, gems and jewellery, and leather and footwear, among others, will be in focus as they seek more relief.
8. Automobile sector will be in focus after India-EU FTA
Any announcement for the auto sector will be in focus as under the recent India-EU FTA that was signed in January, tariffs on fully built European cars (which are currently as high as ~110%) will be phased down to about 10% over time.
Prime Minister Narendra Modi, in his address to the media ahead of the Parliament’s Budget session on the second day, said that the deal has opened up a new market for India and urged manufacturers to seize the opportunity by focusing on quality.
Motilal Oswal however sees no material expectations as the government has already provided several boosters in CY25 in form of GST and personal income tax cuts
9. Announcement to boost domestic consumption
As India faces a 50% tariff from the US and Mexico, the government has announced GST rationalisation in CY25 to boost consumption. Any further announcements in this Budget aimed at supporting consumption will be a key focus for commoners and analysts.
10. Agriculture,MSMEs in focus
In the previous Budget 2025, Finance Minister Nirmala Sitharaman said in her Parliament speech that agriculture and MSMEs are the first and second growth engines of India, along with investment and exports. What the Budget will have in store for these sectors this time will be in focus.
The time is coming closer to see if the government will surprise the taxpayers and consumers with another major policy announcement like tax reform or GST rationalisation or will it ‘restraint and reforms’ like HSBC and other analysts believe.