Union Budget 2026: Growth, Certainty and Strategic Investment in Focus

At a time when the global economy remains on shaky ground—shaped by geopolitical tensions, volatile capital flows and uneven recoveries across regions—the Union Budget 2026 takes on added significance. For India, the upcoming Budget is expected to do more than balance numbers. It is being closely watched as a signal of intent: a framework that can support growth while reinforcing fiscal discipline and sustaining investor confidence.

India’s economy has shown resilience, but the road ahead is not without challenges. Policymakers must keep growth on track even as they work through long-standing structural issues. From the industry’s perspective, Budget 2026 needs to offer clarity and predictability—qualities that matter as much as incentives themselves. A stable policy roadmap could go a long way in strengthening domestic manufacturing, encouraging innovation and easing the overall tax burden on businesses.

Strengthening the Investment Climate

One of the clearest expectations from the Budget is a renewed push to unlock private investment. Expanding the Production-Linked Incentive (PLI) scheme to cover next-generation sectors such as artificial intelligence, robotics and space technology is widely seen as a logical progression. Alongside this, targeted public spending in advanced infrastructure—AI platforms, data centres, automation and space-related ecosystems—could help draw in private capital and position India higher in global value chains.

Tax certainty remains just as critical. Businesses continue to emphasise the need for stable tax policies, simpler compliance systems and fewer interpretational disputes. Over time, predictability has emerged as a stronger driver of investment decisions than short-term rate tweaks, especially for companies planning long-term capacity and capital expansion.

Tax Reforms: Simplifying the System

On the indirect tax side, expectations centre on reducing litigation and easing compliance. A one-time customs dispute resolution scheme, modelled on earlier legacy settlement programmes, could help unlock revenues currently stuck in prolonged legal battles. Similarly, extending the validity period of customs advance rulings would offer greater certainty to import-dependent industries. A simpler, more rational tariff structure—aligned with global standards—could further improve competitiveness.

Direct tax reforms are expected to focus on the smooth rollout of the new Income Tax Act. Clear guidance during the transition phase will be crucial to avoid unnecessary disputes. Rationalising the TDS framework also remains high on the industry’s wish list. With multiple rates and frequent classification issues, the current system often strains cash flows. A leaner structure could benefit both businesses and the exchequer.

There is also growing interest in bringing back accelerated depreciation for manufacturing investments, particularly within existing concessional tax regimes. Such a move could encourage capacity expansion without triggering unintended tax consequences. Employment-linked incentives, including higher thresholds for wage-related benefits, are also being seen as a way to support job creation in skilled segments.

For foreign investors, clarity on issues such as permanent establishment, profit attribution and transfer pricing continues to be a priority. Well-defined rules and selective presumptive regimes for certain cross-border services could reduce disputes and enhance India’s appeal as a stable investment destination.

Sectoral Priorities

Infrastructure and Construction
Infrastructure remains the backbone of India’s growth strategy. With capital expenditure steadily rising, Budget 2026 is expected to maintain strong allocations for roads, railways, housing and urban redevelopment. Additional support for public-private partnerships, modular construction and relief from fluctuating input costs could give the sector a further boost.

Electric Vehicles and Clean Mobility
India’s shift towards clean mobility is likely to stay firmly on the policy agenda. Incentives for domestic battery manufacturing, support for alternative technologies and a stronger focus on recycling and circular supply chains are anticipated. Electrification of public transport, particularly buses, remains key to making the transition both inclusive and scalable.

Renewable Energy
Meeting India’s renewable energy targets will require sustained fiscal backing. The Budget may prioritise transmission infrastructure, rooftop solar, solar parks and viability gap funding. Progress in domestic manufacturing of solar modules and energy storage solutions, along with renewed emphasis on agricultural solarisation, will be closely tracked.

Railways and Transport Modernisation
Railways continue to attract significant capital investment, with attention on network expansion, electrification and freight capacity. Expectations include continued spending on safety upgrades, signalling systems and station redevelopment, as well as measures to draw in private participation and rationalise freight tariffs.

Agriculture and Rural Development
Agriculture remains central to inclusive growth. Higher allocations for irrigation, storage and rural infrastructure, wider income support coverage and easier access to institutional credit are among the key expectations. Strengthening allied sectors and promoting agri-tech could help lift productivity and farm incomes.

Technology, Financial Services and Life Sciences
The technology sector is seeking relief from input tax credit restrictions and simpler registration processes. Financial services players are looking for extended tax incentives for international financial centres and better pass-through structures for specialised funds. In life sciences, stronger R&D incentives and broader patent-related tax benefits could encourage innovation and support self-reliance.

The Bigger Picture

Beyond individual announcements, the real test of Union Budget 2026 will lie in execution. Large allocations and incentives must be matched with faster approvals, transparent processes and effective coordination between the Centre and states. With global borrowing costs still elevated, maintaining fiscal discipline while pursuing growth will remain a delicate balancing act.

If done right, Budget 2026 could reinforce continuity in reform, provide much-needed clarity on taxation and strengthen India’s long-term competitiveness. More importantly, it could help the economy navigate global uncertainty with confidence and purpose.

Market this week

Source: BSE and NSE

• Indian equity markets witnessed a sharp sell-off in the week ending January 9, 2026, recording their weakest weekly performance in more than three months.
• The benchmark indices, Nifty 50 and Sensex, declined in each of the five trading sessions, leading to a substantial erosion of investor wealth estimated at around ₹13.49 lakh crore.
• Sectoral performance remained broadly negative, with Oil & Gas, Energy and Infrastructure stocks facing the steepest pressure, as their respective indices fell in the range of 4–5 percent over the week.
• Metals, Realty, Media and Auto sectors also ended in the red, each registering weekly losses of over 2 percent, reflecting broad-based risk aversion.
• In contrast to the overall market weakness, selective pockets showed resilience, with the Defence index advancing about 1.3 percent, while Consumer Durables stocks gained close to 1 percent.
• On the institutional front, foreign investors maintained a selling bias, exiting equities worth approximately ₹9,209.9 crore during the week.
• Domestic institutional investors, however, acted as a stabilising force, infusing nearly ₹17,594.6 crore into equities and partially cushioning the market decline.

Weekly Leaderboard

Source: BSE

Stocks that made the news this week:

BHEL shares tumble on policy concerns

Shares of Bharat Heavy Electricals Ltd (BHEL) came under heavy selling pressure on January 8, hitting the 10 percent lower circuit during intraday trade after reports suggested that India may lift restrictions on Chinese companies bidding for government contracts. The stock touched a low of ₹273.20 before recovering slightly to close at ₹276.90, down 8.78 percent. The decline followed a media report citing plans to ease procurement curbs as diplomatic and trade ties improve, raising concerns over increased competition for domestic capital goods players like BHEL, which is a major supplier of power equipment to both public and private sector utilities.

Aditya Birla Sun Life AMC slips after Sebi notice

Aditya Birla Sun Life Asset Management shares fell nearly 4 percent on Thursday after market regulator Sebi issued a notice alleging that a Bank of America entity breached insider trading regulations during a share sale conducted in March 2024. The stock dropped as much as 3.85 percent to ₹820.85 on the NSE. According to Sebi, the bank’s securities unit is accused of violating internal information barriers, commonly referred to as “Chinese walls,” prompting concerns over regulatory scrutiny surrounding the transaction.

Broader markets weaken amid global and policy worries

Small- and mid-cap stocks declined on January 8 as broader market indices mirrored the weakness seen in benchmarks during a wider sell-off. The Nifty Smallcap 100 slipped around 1.6 percent to 17,673, while the Nifty Midcap 100 fell about 1.5 percent to 60,525 by early afternoon trade. The decline followed a strong outperformance in the previous session and was attributed to continued foreign investor selling and concerns over potential trade tariffs. With limited domestic triggers, market participants remained cautious, focusing on stock-specific moves ahead of earnings and key macro developments.