Union Budget 2026–27: The Good, The Bad, and the Middle Class Miss
On 1st February 2026, Finance Minister Nirmala Sitharaman presented the Union Budget 2026–27, describing it as a key pillar in building a “Viksit Bharat” (Developed India) by 2047.
The budget arrives at a sensitive global moment. World growth is slowing, geopolitical tensions remain elevated, and supply-chain disruptions continue to test emerging economies. India, however, stands out with growth projected above 6.5%. Against this backdrop, the government has chosen a clear path: prioritise long-term capital expenditure over short-term giveaways.
For industrialists and global investors, this is a reassuring roadmap. For the salaried middle class juggling EMIs, school fees, rent, and urban inflation, the silence on tax relief is hard to ignore.
At Vijay Foundations, we believe in cutting through noise and focusing on substance. This deep-dive explains how Union Budget 2026–27 affects your wealth, your business, and your household budget—and what you can practically do about it.
“For the Sensex, this budget is a green signal.
For the salaried middle class, it feels more like a red light at the end of the month.”
Quick Summary: Top Highlights
Union Budget 2026–27 is a high-capex, fiscally disciplined ‘builder’s budget’.
No major new income-tax relief for salaried taxpayers.
Middle-class households continue to face fiscal drag as slabs and deductions remain frozen.
Long-term opportunities emerge in infrastructure, manufacturing, defence, technology, and renewables.
Households must rely on financial planning, not tax cuts, for near-term relief.
1. The Macro View: Fiscal Discipline Meets Capex Aggression
The “Golden Mean” Strategy
The government has clearly opted for a builder’s budget—spend aggressively on infrastructure while keeping fiscal numbers under control. The core idea is straightforward: build national assets today so that jobs, incomes, and productivity follow over the next decade.
This supply-side growth approach has been a consistent policy direction over recent years and continues strongly in Budget 2026–27.
A. The Capex Juggernaut
The standout number is public capital expenditure of ₹12.2 lakh crore, around 3.1% of GDP—a multi-fold jump from roughly ₹2 lakh crore in 2014–15.
Key focus areas include:
Road transport: Faster execution under Bharatmala and new expressways to reduce logistics costs.
Railways: Dedicated Freight Corridors, logistics hubs, and high-speed rail corridors.
Power & green energy: Expansion of Green Energy Corridors and grid upgrades for renewable integration.
For companies in construction, capital goods, logistics, and power, this creates a strong multi-year demand pipeline.
B. Fiscal Prudence: The Silent Win
Despite the aggressive capex push, the fiscal deficit is targeted at 4.3% of GDP, lower than the revised 4.4% of the previous year. The government remains committed to a glide path aimed at bringing debt-to-GDP to the mid-50% range over the next decade.
Why this matters to households:
Lower government borrowing reduces upward pressure on interest rates over time.
A credible fiscal path keeps foreign investors comfortable with Indian bonds.
It lowers the risk of future “crisis-driven” taxes.
In simple terms, fiscal discipline today reduces economic pain tomorrow.
2. Agriculture & Rural Economy: Quiet Reforms, Not Loud Announcements
Budget 2026–27 avoids headline-grabbing steps like farm-loan waivers or sharp MSP hikes. Instead, it quietly reinforces a productivity-led rural growth strategy.
Key elements include:
Agri-tech and digital public infrastructure for farmers
Climate-resilient agriculture and productivity enhancement
Expansion of allied activities such as dairy and fisheries
Scaling women-led Self-Help Groups under schemes like Lakhpati Didi
In line with the Budget Speech, the government has strengthened the agricultural ecosystem through the Digital Agriculture Mission, continued support under PM-KISAN, climate-resilient farming initiatives, and enhanced funding for allied sectors including dairy, fisheries, and agri-processing. The scaling of women-led Self-Help Groups further reinforces income diversification in rural India.
Rather than direct income transfers, the government is betting on technology adoption, productivity, and sustainable rural livelihoods. The benefits are structural and long-term, not immediate.
3. The “Middle Class Miss”: What the Budget Didn’t Do
Despite persistent inflation in rent, education, healthcare, and daily expenses, income-tax slabs, major deductions, and the standard deduction remain unchanged.
For salaried households, this translates into lower real disposable income.
The Structural Shift: The New Income Tax Act
While tax slabs remain unchanged, the Finance Minister emphasised the transition to the New Income Tax Act (effective April 2026)—a comprehensive overhaul of India’s decades-old tax framework.
Simplification over deductions: A move away from exemptions like 80C-driven savings toward cleaner taxation.
Ease of compliance: Faster filing, fewer disputes, and reduced litigation.
For taxpayers who heavily used deductions such as 80C and home-loan interest, the new system may feel simpler—but also more expensive.
Fiscal Drag: The Hidden Tax
When salaries rise only to keep pace with inflation while tax slabs remain frozen, more income is taxed at higher rates—a phenomenon known as fiscal drag.
Example:
A salary increase from ₹15 lakh to ₹16.5 lakh may look positive on paper, but much of the increment gets taxed, while real purchasing power barely improves.
Stagnant Deductions and Benefits
Key middle-class pain points remain unaddressed:
Section 80C: Still capped at ₹1.5 lakh, unchanged since 2014.
HRA vs reality: Rents in metros have surged, but HRA rules remain unchanged.
Standard deduction: Continues at ₹75,000 under the new regime.
The message is clear: the government prefers macro-stability over short-term tax relief.
4. MSMEs & Small Businesses: Credit Relief Without Tax Relief
MSMEs continue to receive support through:
Expanded credit-guarantee schemes
Better access to working capital
Technology upgradation and formalisation incentives
However, there is no direct tax relief. The strategy mirrors the broader budget philosophy: strengthen balance sheets and productivity first, let profitability follow.
A notable, though understated, element of the MSME strategy is the renewed focus on export enablement and global value-chain integration. Budget 2026–27 reinforces credit support, technology adoption, and formalisation to help MSMEs scale beyond domestic markets. Improved logistics infrastructure, simplified compliance, and access to export financing are expected to position Indian MSMEs as competitive participants in global supply chains.
5. Health & Education: Capacity Expansion, Not Cost Relief
Budget 2026–27 supports:
Expansion of medical colleges and healthcare capacity
Digital health infrastructure
Skill-linked education and training
The Budget continues to prioritise capacity expansion through higher allocations for healthcare and education infrastructure. While this strengthens long-term service availability, it does not immediately ease out-of-pocket expenses for middle-class families.
6. Sector-Wise Deep Dive: Who Won, Who Lost
Real Estate & Housing
Affordable housing gets a push
No change in the ₹2 lakh home-loan interest cap
Metro homebuyers see limited relief
Automobiles & EVs
Policy focus shifts to electric buses and two-wheelers
Commercial EVs benefit more than premium cars
Defense & Manufacturing
Defense allocation crosses ₹6.5 lakh crore
Strong push for domestic procurement and deep-tech
Technology, Semiconductors & R&D
Semiconductor Mission 2.0
₹1 lakh crore private-sector R&D corpus
7. Wallet Watch: Customs Duty and Cost of Living
What may get cheaper:
Smartphone components
Life-saving medicines
Gold and silver (calibrated duty cuts)
What may get costlier:
Selected plastic products
Certain specialised chemicals
The immediate household impact is limited, but sectoral business impact is meaningful.
8. Inflation Strategy: Control Supply, Not Subsidies Demand
The government’s stance is clear: inflation control will come through supply-side efficiency, infrastructure expansion, and fiscal discipline—not through tax cuts or subsidies.
9. Digital Governance & Ease of Living
Budget 2026–27 continues India’s push toward:
Simplified tax compliance
Reduced litigation
Predictable, digital governance
These measures may not raise income directly, but they reduce hidden costs and uncertainty.
10. Youth, Skills and First Jobs: The “Yuva Shakti” Focus
The budget places strong emphasis on employability rather than guaranteed jobs:
First-job support linked to EPFO registration
A large internship pipeline with stipends
Industry-linked skilling for AI, digital, and advanced manufacturing
Support for entrepreneurship and the creator economy
For young Indians, the benefit lies in pathways to experience and employability, not one-time freebies.
11. What the Government Chose Not to Do
Just as important as what the budget announces is what it avoids:
No large-scale cash transfers
No consumption-led stimulus
No broad middle-class tax cuts
This is a deliberate policy choice, not an omission.
Vijay Foundations’ Verdict: Great for the Economy, Tough on the Household Budget
Union Budget 2026–27 is a high-quality nation-building budget, but a tough one for middle-class households. It strengthens India’s long-term growth story while asking salaried families to absorb continued fiscal pressure.
For businesses and investors, it inspires confidence.
For households, it demands better planning, disciplined saving, and strategic investing.
What You Can Do This Week
Compare old vs new tax regime for your current CTC.
Increase SIPs or long-term investments by your last salary hike.
Review loans, insurance, and emergency funds (6–9 months).
Access the official Union Budget 2026–27 PDF documents for full details.
Frequently Asked Questions (FAQ)
Q1: Why wasn’t the 80C limit increased?
The government appears unwilling to sacrifice revenue while prioritising high capex and fiscal consolidation.
Q2: Will home-loan interest rates fall after this budget?
Not directly, but fiscal discipline may support lower long-term yields if inflation moderates.
Q3: Is the old tax regime being removed?
No. It remains optional, though policy nudges more taxpayers toward the new regime.
Disclaimer:
This article is for informational purposes only and does not constitute financial or investment advice. Please consult a qualified professional before making decisions.
Adv. Mamta Singh Shukla
Supreme Court of India | Certified PoSH Trainer
Finally, the article was originally published by Vijay Foundation. For more legal and public-interest articles, readers may visit vijayfoundations.com.