The Union Budget for 2026 set out higher government spending and a set of financial sector measures, with a focus on public infrastructure funding and changes to parts of the capital market. Finance Minister Nirmala Sitharaman said the proposals were aligned with the government’s “Sabka Sath Sabka Vikas” approach to economic growth.
Capital expenditure for FY27 was pegged at Rs 12.2 lakh crore, up from Rs 11.2 lakh crore in FY26. Alongside the spending plan, the Budget included proposals related to public sector non-banking finance companies and the bond market, covering municipal debt, corporate bonds, and new market instruments.
Capital spending and public sector NBFC plan
The Budget maintained a strong push on capital expenditure, with higher allocations aimed at sustaining growth through public investment. The Finance Minister also announced a plan to reorganise public sector NBFCs as part of a wider effort to strengthen state-owned financial institutions.
Under this proposal, entities such as Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) would be part of a consolidation process. The stated objective is to expand credit availability, improve operational efficiency, and support better use of technology by creating fewer but larger institutions.
Bond market measures announced in the Budget
Several announcements in the Budget focused on debt markets, covering municipal bonds, corporate bonds, and related instruments. The Finance Minister outlined steps intended to broaden participation and improve long-term funding options.
One of the proposals is a Rs 100 crore incentive for a single municipal bond issuance exceeding Rs 1,000 crore. The measure is designed to encourage larger cities to raise funds through the bond market rather than relying solely on traditional borrowing channels.
The Budget also proposed the introduction of total return swaps on corporate bonds and a market-making framework for corporate debt, supported by access to funds and derivatives linked to corporate bond indices. In addition, the government will review foreign exchange management rules related to non-debt instruments.
Announcing the measures, the Finance Minister said, “I propose to introduce a market making framework with suitable access to funds and derivatives on corporate bond indices. I also propose to introduce total return swaps on corporate bonds. Municipal bonds to encourage the issuance of municipal bonds of higher value by larger cities. I propose an incentive of 100 crore rupees for a single bond issuance of more than 1,000 crore.”