Budget Signals India’s Future Focus along with Policy Continuity
Growth is being pursued through employment generation and capacity creation, not through short-term support
By Anand Shah
Last Updated: Feb 02, 2026, 17:28 IST4 min
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Budget 2026-27 signals a clear choice by the government. Growth is being pursued through employment generation and capacity creation, not through short-term support. The framework rests on expanding productive assets, improving participation in formal economic activity, and supporting sectors that can generate jobs at scale. Manufacturing, services exports, logistics and financial intermediation remain central to this approach. The intent is to let incomes and profits drive consumption rather than stimulating it solely through fiscal stimulus.
Public spending continues to play a guiding role, but within a controlled fiscal structure. Nominal GDP for FY27 has been projected at Rs393 lakh crore, reflecting about 10 percent growth. Overall expenditure is budgeted at Rs53.47 lakh crore, rising at a slower pace than in previous years. Capital expenditure is set at Rs12.22 lakh crore, while effective capital outlay, including grants for asset creation, rises more sharply to Rs17.15 lakh crore. The fiscal deficit target has been lowered to 4.3 percent of GDP, keeping the government on track toward a gradual reduction in the debt ratio over the decade.
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What do the budget numbers say?
A notable feature of this Budget is the shift in manufacturing policy. The focus is no longer on final assembly alone but on building complete production systems. Key allocations include Rs10,000 crore over five years for the Biopharma Shakti programme, an increase in the Electronics Components Manufacturing Scheme outlay to Rs40,000 crore from Rs22,919 crore earlier, and a Rs10,000 crore container manufacturing scheme. Allocations for carbon capture, chemical parks, textile parks, rare earth processing and the revival of older industrial clusters point to an effort to strengthen domestic supply chains and reduce dependence on imports. These measures have positive implications for capital goods, electronics manufacturing services, textiles supply chain, specialty chemicals, logistics and industrial services companies.
Infrastructure continues to remain a large pillar, even though the emphasis is changing. This Budget introduces tools to improve execution and risk sharing. The proposed Infrastructure Risk Guarantee Fund aims to reduce early-stage project risk and attract private capital. New freight corridors, expansion of inland waterways, seven high-speed rail links and monetisation of public-sector real estate through REITs are intended to improve asset use, logistics flow and funding efficiency.
Services sectors also receive targeted support. In information technology and digital services, changes to safe harbour rules and margin norms reduce uncertainty in tax treatment. Long-term tax exemptions for foreign cloud service providers operating from India could lead to sustained investment in data centres and related infrastructure, benefiting power, cooling and backup service providers. Beyond technology, initiatives in health care, tourism, hospitality training and caregiving aim to strengthen service delivery while creating employment. Collectively, these measures indicate that services exports are being supported institutionally in a manner similar to manufacturing exports. Furthermore, the focus on creative industries through AVGC-related programmes reflects an effort to formalise and scale newer service segments.
Financial markets see incremental reforms designed to deepen capital pools. Measures such as market making and total return swaps for corporate bonds, incentives for municipal debt and a review of foreign investment rules are meant to improve access to long-term capital. The increase in securities transaction tax on futures and options appears to be aimed at moderating excess activity in the derivative space. While this may have a near-term negative impact on exchange earnings and market sentiment, structural volumes are unlikely to be materially impaired over the long term.
In agriculture and rural areas, policy attention is directed toward productivity and downstream value. Investments in water storage, fisheries, livestock-based businesses and higher-value crops suggest a move away from income support toward income generation.
Taken together, the Budget reflects policy continuity. Growth is expected to normalise and outcomes are likely to vary more across companies than across sectors. In this environment, businesses with stable earnings, manageable leverage and the ability to execute should stand out as market leadership becomes less theme-driven and more fundamentals-led.
Take on Equities
Equity markets continue to operate in an environment shaped by global uncertainty, geopolitical risks and uneven earnings momentum. In this context, markets remain in a bottom-up stock picking phase, characterised by dispersion in returns across sectors and companies.
Large caps with resilient business models remain relatively better positioned in the current environment. When it comes to mid and small caps, opportunities in these segments require higher selectivity, given the variability in earnings quality and balance sheet strength. So, caution is warranted when investing here.
While certain sectors linked to domestic investment activity, manufacturing ecosystems and services exports may see improved earnings visibility, outcomes will depend on company-specific factors rather than sector-wide tailwinds. Hence, valuation discipline remains critical, particularly in segments where expectations are already elevated.
Overall, the current market environment favours a disciplined, bottom-up approach to equity investing. With global risks persisting and domestic earnings recovery progressing gradually, return generation is likely to be driven by selective stock positioning rather than broad market exposure.
Read Forbes India's complete Budget 2026-27 coverage here
First Published: Feb 02, 2026, 17:28
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