Union Budget 2026 : Key highlights for UPSC and other competitive exams

PART A

This part of the speech provides an overview of the economy, highlights the concerns and priorities of the Government including some of the major programmes and flagship schemes and the budget estimates for the ensuing financial years.

FM laid down three Kartavyas or duties of the government that were considered while preparing the Budget.

1. First is to accelerate and sustain economic growth by enhancing competitiveness and building resilience to volatile global dynamics.

2. Second is to fulfil the aspirations of people and build their capacity and make them strong partners in India’s path to prosperity

3. Third is to ensure ‘sab ka saath, sab ka vikas’. It is to ensure that every family, community, region has access to resources, ammenities opportunities for meaningful participation.

#1st Kartavya – Accelarate and sustain economic growth

FM proposes interventions in 6 sectors -Scaling up manufacturing in 7 strategic sectors; Rejuvenating legacy industrial sectors; Creating champion MSMEs; Delivering a push for infra; Ensuring long-term security and stability; Developing city economic regions.

Scaling up manufacturing in 7 strategic sectors:

1. Biopharma SHAKTI (Strategic for Healthcare Advancement through Knowledge, Technology and Innovation): Finance Minister Nirmala Sitharaman proposed to develop India as a global bio-pharma manufacturing hub by establishing Bio Pharma Shakti with an outlay of Rs 10,000 crore over the next 5 years. This will build an ecosystem for domestic productions of biologics and biosimilars.

2. India Semiconductor Mission (ISM) 2.0 to be launched

FYI: India Semiconductor Mission — Recognising the significance of semiconductors in achieving technological self-reliance and economic growth, India launched the India Semiconductor Mission (ISM) in 2021 with the aim to strengthen India’s strategic position in the global value chain. 

3. Odisha, Kerala,  Andhra Pradesh, and Tamil Nadu to establish dedicated rare earth mineral corridors.

FYI: Rare earths are a subset of the critical minerals grouping that includes 17 metallic elements nestled lower down in the periodic table, from lanthanum (atomic number 57) to lutetium (71), as well as plus scandium (21) and yttrium (39).

4. Scheme for Enhancement of Construction & Infrastructure Equipment (CIE) to be introduced

5. Three dedicated Chemical Parks to be established

6. Container Manufacturing Scheme to be introduced with budgetary allocation of ₹10,000 crore over 5 year period

7. Scheme to revive 200 legacy industrial clusters to be introduced

— Textile Sector: For the labour-intensive textile sector, the Budget has proposed a new scheme Mahatma Gandhi Gram Swaraj Yojana to boost the Khadi handloom sector with training, skilling, production, and quality checks, says Sitharaman. 

— The Budget proposed an Integrated Programme with 5 sub-parts: National Fibre Scheme for self-reliance in natural fibres, Textile Expansion and Employment Scheme to modernise traditional clusters, A National Handloom and Handicraft programme, Tex-eco initiative, and Samarth 2.0.

— Rejuvenation of Legacy Industrial Cluster: A Scheme to revive 200 legacy industrial clusters to improve their cost competitiveness and efficiency were introduced in the Budget. 

— Creating “Champion SMEs”: Recognising MSMEs as a vital engine of growth, Budget proposed a three-pronged approach to help them grow as ‘Champions’: Equity support, liquidity support, and Professional Support.

FYI: MSMEs — In the last year’s Budget, the government gave new definitions for micro, small and medium enterprises (MSMEs). The investment and turnover limits for classification of all MSMEs was increased 2.5 and two times respectively. This means the investment limit to be classified as a micro enterprise goes up to Rs 2.5 crore. For small enterprises, this limit goes up to Rs 25 crore, and for medium ones, it becomes Rs 125 crore. Similarly, the turnover limit for these classifications goes up to Rs 10 crore for micro enterprises, Rs 100 crore for small ones, and Rs 500 crore for medium enterprises.

— Infrastructure: The Budget proposed to increase the Public capex to ₹12.2 lakh crore, compared to ₹2 lakh crore in FY2014-15, shows multifold increase, to continue the momentum of infrastructure development. 

FYI: capital expenditure (CapEx) is the funds allocated and utilised by the government to develop assets contributing to the country’s economic growth. This includes investments in infrastructure, machinery, healthcare, education, and other essential sectors.

— The FM has proposed to set up an Infrastructure Risk Guarantee Fund to provide prudently calibrated partial credit guarantees to lenders.

— For environmentally sustainable movement of cargo,

(a) It has been proposed to establish new Dedicated Freight Corridors connecting Dankuni in the East to Surat in the West; 

(b) Operationalise 20 new National Waterways (NW) over next 5 years; 

(c) Launch a Coastal Cargo Promotion

— Scheme for incentivising a modal shift from rail and road. A ship-repair ecosystem is to be established in Varanasi and Patna.

— Carbon Capture Utilization and Storage technologies: FM has proposed an outlay of Rs 20,000 crore over the next 5 years in Carbon Capture Utilization and Storage (CCUS) technologies to scale up and achieve higher readiness levels in end-use applications across. 

FYI: CCUS is a means of reducing atmospheric emissions of carbon dioxide — a key driver of global warming and climate change.

— High-speed rail corridors: For environmentally sustainable passenger systems, the government will develop seven High-Speed Rail corridors between cities as ‘growth connectors’.

— Ease of Doing Business (EoDB): For this, the Budget has announced to permitted Individual Persons Resident Outside India (PROI)  to invest in equity instruments of listed Indian companies through the Portfolio Investment Scheme.

FYI: Sitharaman said persons outside India can participate in India’s growth story through listed equity under the Portfolio Investment Scheme. The tweaks to the PROI scheme are intended to enhance investment avenues for NRIs and other residents outside India. There will also be a comprehensive review of the Foreign Exchange Management Act (FEMA) to create a more contemporary user-friendly framework for foreign investors. The Economic Survey 2025-26, presented on Thursday, had flagged the global capital strike and its adverse impact on the rupee’s stability, despite strong macroeconomic fundamentals. While an undervalued rupee helps offset the impact of higher US tariffs, investor reluctance to commit to India warrants examination, the Survey had said. In the corporate bond market, a proposal to introduce a market making framework with suitable access to funds and derivatives on corporate bond indices has been proposed. In another move to attract global investors, the FM has proposed to provide a tax holiday until 2047 to any foreign company that provides cloud services to customers globally from data centres in India. 

A tax holiday is a temporary suspension or reduction of certain taxes aimed at stimulating economic activity. 

#2nd Kartavya- Fulfil aspirations and build capacity

— Highlighting that the continued efforts of the government lead close to 25 crore individuals out of multidimensional poverty, the government has decided to place a renewed emphasis on the Services Sector to provide a pathway to fulfilling aspirations of a youthful India.

— ‘Education to Employment and Enterprise’ standing committee: Union FM Nirmala Sitharaman has proposed to set up a high-powered ‘Education to Employment and Enterprise’ standing committee to recommend measures to focus on the services sector as a “core driver of Viksit Bharat”. This will make us a global leader in services, with a 10% global share by 2047.

— New sectors as career pathways for youth: For this, the Budget has proposed  interventions in the following sectors: upgradation of Allied Health Professionals (AHPs) and building a strong Care Ecosystem, covering geriatric and allied care service. 

FYI: The International Labour Organisation (ILO) defines Care Economy as a “set of activities related to the provision of care and support to individuals, households, and communities, including both paid and unpaid work.” Care Economy encompasses a broad spectrum of labour and resources dedicated to meeting the care needs of individuals and families.

— Medical tourism service: In order to promote India as a hub for medical tourism services, a new scheme will be launched by the government to support States in establishing five Regional Medical Hubs, in partnership with the private sector.

— Ayurveda: Recognising the growing global demand of Ayurveda, the Budget has proposed  to (i) set up 3 new All India Institutes of Ayurveda; (ii) upgrade AYUSH pharmacies and Drug Testing Labs; and (iii) upgrade the WHO Global Traditional Medicine Centre in Jamnagar.

— Orange Economy: FM announces content creator labs to boost India’s Animation Visual effects, Gaming and Comic (ABGC) sector in 15,000 secondary schools across India and 500 colleges.

FYI: The “Orange Economy” refers to the segment of the economy driven by creativity, culture and intellectual property. It includes activities where value is derived mainly from ideas, knowledge, artistic expression and cultural content. These initiatives are in keeping with the Economic Survey 2025-26 findings, which state that revenue from gaming in 2024 was around Rs 232 billion, while animation and VFX amounted to around Rs 103 billion. Live entertainment accounted for more than Rs 100 billion in 2024, with strong spillovers to tourism and urban services. Many sectors of the economy are linked with colours. Green Economy signifies an energy-efficient, sustainable industry, while White Economy refers to health and social care. Blue and Silver refer to the marine economy and the ageing sectors respectively.

— Education: The Budget has proposed the following:

National Institute of Design to be established to boost design education and development in the eastern region of India

5 University Townships to be created in vicinity of major industrial and logistic corridors

1 girls’ hostel to be established in every district in Higher Education STEM institutions

4 Telescope Infrastructure facilities to be set up or upgraded to promote Astrophysics and Astronomy

— Tourism: To promote tourism sector, the Budget has proposed the National Institute of Hospitality by upgrading the existing National Council for Hotel Management and

— Catering Technology. A pilot scheme will be launched for upskilling 10,000 guides in 20 iconic tourist sites and a National Destination Digital Knowledge Grid will also be established to digitally document all places of significance—cultural, spiritual and heritage. Developing trekking and hiking experience was also discussed.

—   Heritage and Culture Tourism: The government has proposed to develop 15 archeological sites including Lothal, Dholavira, Rakhigarhi, Adichanallur, Sarnath, Hastinapur, and Leh Palace into vibrant, experiential cultural destinations.

— Sports: To transform the Sports sector over the next decade, the Budget has proposed to launch a Khelo India Mission to systematic nurturing the sports talent in the country.

#3rd Kartavya – aligns with vision of Sabka Sath, Sabka Vikas towards a Viksit Bharat

— Fisheries and animal husbandry will be strengthened through integrated development of 500 reservoirs and Amrit Sarovars, improved fisheries value chains in coastal areas with market linkages involving start-ups, women-led groups and Fish Farmer Producer Organisations, and targeted support to animal husbandry via credit-linked subsidies, modernisation of livestock enterprises, expansion of livestock, dairy and poultry value chains, and promotion of Livestock Farmer Producer Organisations to create quality employment in rural and peri-urban areas.

FYI: With a view to conserving water for the future, the initiative Mission Amrit Sarovar was launched on 24th April 2022. The Mission was initially aimed at developing and rejuvenating 75 water bodies in each district of the country as a part of the celebration of Azadi ka Amrit Mahotsav

— For High Value Agriculture, the FM announced support for high-value crops such as coconut, sandalwood, cocoa and cashew in coastal areas. Agar trees in the Northeast and nuts such as almonds, walnuts and pine nuts in hilly regions will also be supported. Since India is the world’s largest producer of coconuts, with about 30 million people, including nearly 10 million farmers, dependent on it for their livelihood, a Coconut Promotion Scheme has been proposed to increase production and enhance productivity.

— FM proposed Bharat-VISTAAR (Virtually Integrated System to Access Agricultural Resources) —a multilingual AI tool that shall integrate the AgriStack portals and the ICAR package on agricultural practices with AI systems. The aim is to enhance farm productivity, enable better decisions for farmers and reduce risk by providing customised advisory support.

FYI: AgriStack is the digital foundation being set up by the government to make it easier to bring various stakeholders together to improve agriculture in India and enable better outcomes and results for the farmers by using data and digital services. Evolved from the thinking of the InDEA 2.0 Architecture by MeitY, Agri Stack is being built by the Ministry of Agriculture & Farmers Welfare in an open manner, with a federated structure – keeping States at the center of the design, ensuring participatory and inclusive design to ensure the sector evolves collectively to help shape the next decade of agriculture in India.

— FM announced that Self-Help Entrepreneur (SHE) Marts will be set up as community-owned retail outlets within the cluster level federations through enhanced and innovative financing instruments. It is built in the success of Lakhpati Didi Program.

FYI: The Lakhpati Didi Program, launched under the Deendayal Antyodaya Yojana – National Rural Livelihoods Mission (DAY-NRLM), empowers rural women in Self-Help Groups (SHGs) to earn a sustainable annual household income of ₹1 lakh or more. It focuses on skill development, financial literacy, and diversified livelihood activities to foster entrepreneurship and economic independence.

— To empower Divyangjan, through the Divyangjan Kaushal Yojana, task-oriented and process-driven sectors such as IT, AVGC, hospitality, and food and beverages will be leveraged to provide dignified livelihood opportunities to Divyangjans via industry-relevant, customized training tailored to specific needs. Complementing this, the Divyang Sahara Yojana will ensure timely access to high-quality assistive devices by scaling up ALIMCO’s production, strengthening R&D and AI integration, reinforcing PM Divyasha Kendras, and establishing Assistive Technology Marts as modern retail-style centres for Divyangjans and senior citizens to explore, try, and purchase assistive products.

FYI: ALIMCO or Artificial Limbs Manufacturing Corporation Of India is the only manufacturing company producing various types of assistive devices under one roof to serve all types of disabilities across the country.

— FM laid stress on Mental Health and Trauma Care in the Budget Speech. Since there are no national institutes for mental healthcare in north India, the government will set up a NIMHANS-2 and also upgrade National Mental Health Institutes in Ranchi and Tezpur as Regional Apex Institutions. She announced that the government will strengthen and increase trauma care and emergencies  capacities by 50% in District Hospitals by establishing Emergency and Trauma Care Centres.

FYI: Currently, NIMHANS is located in Bengaluru, Karnataka.

— FM proposed the development of Purvodaya through an integrated East Coast Industrial Corridor with a well-connected node at Durgapur,
creation of 5 tourism destinations in the 5 Purvodaya States.

FYI: Purvodaya focuses on five states, namely Bihar, Jharkhand, West Bengal, Odisha, and Andhra Pradesh.

— Focussing on Buddhist sites in North-East India and civilizational confluence of Theravada and 18 Mahayana/Vajrayana traditions, FM  proposed to launch a Scheme for Development of Buddhist Circuits in Arunachal Pradesh, Sikkim, Assam, Manipur, Mizoram and Tripura.

PART B

This part of the speech deals with tax proposals in the Budget.

—  The GDP for FY 2026-27 is estimated at ₹393,00,393 crore, which is 10% over the Advance Estimates for FY 2025-26 of ₹357,13,886 crore released by NSO.

—  The government fulfilled the commitment made in FY 2021-22 to reduce the fiscal deficit below 4.5 percent of GDP by 2025-26. In RE 2025-26, the fiscal deficit has been estimated at par with BE of 2025-26 at 4.4 percent of GDP. In line with  the new fiscal prudence path of debt consolidation, the fiscal deficit in BE 2026-27 is estimated to be 4.3 percent of GDP. 

— Budget estimates for FY 2026-2027

• Fiscal Deficit: 4.3%
• Revenue Deficit: 1.5%
• Effective Revenue Deficit: 0.3%
• Primary Deficit: 0.7%
• Revenue Receipts: 3533150
• Capital Receipts: 1814165
• Total Receipts (Revenue + Capital): 5347315 
• Total Expenditure: 5347315

Deficit trends (Source: Budget at a glance 2026-2027)

Fiscal Consolidation

— The Centre’s fiscal consolidation roadmap will see a change in the target metric to its debt-to-GDP ratio, with the objective being to reduce it 50±1 percent by 2030-31.

— For 2026-27, the debt-to-GDP target is 55.6%, down from 56.1% in 2025-26, with the fiscal deficit target set at 4.3% for the net fiscal year.

— The Economic Survey for 2025-26, presented earlier this week on Thursday, had said the debt-to-GDP target is a “concrete commitment with a specific date” which also affords the government “flexibility to fine-tune fiscal policy in response to emerging needs in the intervening period” at a time when the geopolitical and geoeconomic environment is volatile and unpredictable.

— To finance the fiscal deficit, the Centre is set to borrow Rs 17.2 lakh crore on a gross basis in 2026-27, up from Rs 14.8 lakh crore budgeted for 2025-26. This will be the biggest component of the Centre’s fiscal deficit financing. 

— The sharp increase in the gross market borrowing of the government – which it does by issuing bonds, which are then bought by institutions like banks and insurance companies as well as foreign investors, among others – is due to a big jump in the repayment of past debt that matures in 2026-27. 

16th Finance Commission

— In addition to presenting the Union Budget for 2026-27, Finance Minister Nirmala Sitharaman has also accepted the recommendations of the 16th Finance Commission – headed by former Niti Aayog Vice Chairman Arvind Panagariya – for the next five fiscal years ending in 2030-31. Notably, the 16th Finance Commission report was submitted to the President in November 2025, and was tabled in Parliament today (February 1).

— The Finance Commission makes key recommendations that govern how much money states get as a percentage of the Central government’s divisible pool of tax revenues. 

— The Government has accepted the recommendation of the Commission to retain the vertical share of devolution at 41%. 

—  As recommended by the 16th Finance Commission, Rs 1.4 lakh crore allocation to states as Finance Commission grants for 2026-27 announced by FM Sitharaman. These include urban and rural local body, and disaster management grants. 

New Income Tax Act

— Income Tax Act, 2025 will come into effect from 1st April, 2026. The simplified Income Tax Rules and Forms will be notified shortly, giving adequate time to taxpayers to acquaint themselves with its requirements.

FYI: Aimed at curbing job losses in the SEZs, the Budget proposed “a special one-time” measure to facilitate sales by eligible SEZs to the Domestic Tariff Area at concessional rates of duty. 

From custom duty cuts for inputs, especially involving labour-intensive sectors, focus on manufacturing in various clusters, to announcing capital support for modernising machinery in the textile sector, the Union Budget announcements have a strong focus on addressing the global trade volatility. Sitharaman has also announced a Rs 10,000-crore container manufacturing scheme amid their continued shortage and dependency on China.

Alongside these measures, the FM proposed a sharp hike in the Securities Transaction Tax (STT) on futures trading and options premium and when they are exercised, to rein in unbridled speculative activity. This triggered a sharp market sell-off that sent the benchmark Sensex plunging more than 2,000 points at one stage just after the speech ended, although it partially recovered later.

Securities Transaction Tax (STT) is a direct tax levied by the Government of India on the purchase or sale of securities (shares, derivatives, equity mutual funds) listed on recognized Indian stock exchanges.

Brush up the basics:

What is the Union Budget?

The Union Budget (technically called the Annual Financial Statement under Article 112 of the Constitution of India) lays out an account of the government’s financial health. It tells the citizens not only how much money the government raised last year, where it spent it, and how much it had to borrow to meet the gap, but also gives an estimate of what it expects to earn in the next financial year (in the present case, the current financial year), how much and where it plans to spend it, and how much it would likely have to borrow to bridge the gap. The Revenue and the Capital sections together, make the Union Budget. The Budget is caused to be presented before both the houses of the Parliament by the President. It is presented by the Finance Minister with Budget Speech. 

FYI: The Budget Division coming under the Department of Economic Affairs of Finance Ministry of Government of India is responsible for the preparation and submission of the Central Government to the Parliament.

What are the important Budget Documents?

Besides the Union Finance Minister’s Budget Speech, various Budget documents are presented to the Parliament.

A. Documents mandated under the Constitution of India:

1. Annual Financial Statement (AFS) – Under Art. 112

2. Demands for Grants (DG) — Under Art. 113

3. Finance Bill— Under Art. 110

B. Documents presented as per the provisions of the Fiscal Responsibility and Budget Management Act, 2003:

1. Macro-Economic Framework Statement

2. Medium-Term Fiscal Policy cum Fiscal Policy Strategy Statement

What are some important terms related to the budget?

1. Revenue Budget: The revenue budget consists of the government’s revenue receipts (Tax revenues and non-tax revenues) and revenue expenditures. Tax revenues comprise proceeds of taxes and other duties levied by the Union.

2. Revenue Expenditure: Revenue expenditure is for the normal running of Government Departments and for rendering of various services, making interest payments on debt, meeting subsidies, 11 grants in aid, etc. Broadly, the expenditure which does not result in the creation of assets for the Government of India is treated as revenue expenditure.

3. Capital Budget: Capital receipts and capital expenditures together constitute the Capital Budget. The capital receipts are loans raised by the Government. Capital expenditure consists of the acquisition of assets like land, buildings, machinery, equipment, as well as investments in shares, etc., and loans and advances granted by the Central Government to the State and the Union Territory Governments, Government companies, Corporations, and other parties.

4. Fiscal Deficit: Fiscal Deficit is the difference between the Revenue Receipts plus Non-debt Capital Receipts (NDCR) and the total expenditure. In other words, fiscal deficit is “reflective of the total borrowing requirements of Government”.

5. Demands for Grants: Article 113 of the Constitution mandates that the estimates of expenditure from the Consolidated Fund of India included in the Annual Financial Statement and required to be voted by the Lok Sabha, be submitted in the form of Demands for Grants.

6. Money Bill: Article 110 defines a “Money Bill” as one containing provisions dealing with taxes, regulation of the government’s borrowing of money, and expenditure or receipt of money from the Consolidated Fund of India, among others.

7. Finance Bill: At the time of presentation of the Annual Financial Statement before the Parliament, a Finance Bill is also presented in fulfillment of the requirement of Article 110 (1)(a) of the Constitution, detailing the imposition, abolition, remission, alteration or regulation of taxes proposed in the Budget. A major difference between money and Financial Bills is that while the latter has the provision of including the Rajya Sabha’s (Upper House) recommendations, the former does not make their inclusion mandatory. The Lok Sabha has the right to reject the Rajya Sabha’s recommendations when it comes to Money Bills.

8. Finance Commission: As per Article 280 the President constitutes a Finance Commission every five years with one chairman and four members. The Finance Commission Act 1951 defines the qualification and eligibity and terms of the chairman and members. Two distinctive features of the Commission’s work involve redressing the vertical imbalances between the taxation powers and expenditure responsibilities of the centre and the States respectively and equalization of all public services across the States.

It is the duty of the Commission to make recommendations to the President as to— the distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them and the allocation between the States of the respective shares of such proceeds; the principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India; the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats in the State on the basis of the recommendations made by the Finance Commission of the State; the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State; any other matter referred to the Commission by the President in the interests of sound finance.

9. Effective Capital Expenditure (EffCapex) refers to the sum of Capital Expenditure and Grants-in-Aid for Creation of Capital Assets.

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