Pre-Budget 2026: Fiscal Prudence With Capex-Led Growth; Key Sectors To Watch For Investment

India's Union Budget 2026-27 arrives at a pivotal stage in the economic cycle. With growth momentum intact and macro stability largely restored, the government is expected to pivot from stimulus-driven support to an engagement- and productivity-led fiscal framework. Markets are anticipating a pragmatic, continuity-focused budget that reinforces fiscal discipline while actively incentivising private investment and long-term capital formation under the broader vision of a "Viksit Bharat."

Overall Fiscal Architecture and Capital Expenditure

The fiscal deficit for FY27 is expected to be pegged in the range of 4.3%-4.4% of GDP, marginally lower than the 4.4% target for FY26, reaffirming the government's commitment to fiscal discipline. This consolidation, however, is unlikely to come at the cost of growth.

"Capital expenditure is expected to rise by 12%-15% year-on-year, taking the central government's capex outlay to approximately Rs 13.0-13.2 trillion, or about 3.3% of GDP. This sustained capex thrust remains the cornerstone of India's growth strategy, crowding in private investment and supporting sectors such as cement, steel, capital goods, construction, and heavy engineering. For investors, infrastructure-linked themes continue to offer long-term visibility and earnings stability," commented Siddharth Jain, Vice President - Valuations SPA Capital Advisors Ltd.

Agriculture: From Income Support to Productivity-Led Growth

With agriculture supporting nearly 46% of India's workforce, Budget 2026 is expected to focus on structural transformation rather than incremental welfare.

"The agricultural credit target is likely to be raised to Rs 22-25 lakh crore, addressing persistent financing gaps for small and marginal farmers. There is also a strong expectation that the collateral-free loan limit may be enhanced to Rs 2 lakh, improving credit access and rural liquidity," said Siddharth Jain, Vice President - Valuations SPA Capital Advisors Ltd.

Mission-mode initiatives such as Atmanirbharta in Pulses (with an outlay of Rs 11,440 crore through FY30) and NMEO-Oilseeds are central to reducing India's Rs 2 lakh crore annual edible oil import bill. These measures create investable opportunities across agri-inputs, seed companies, food processing, and agri-logistics.

Technology adoption will remain a key theme, with continued support for AGRISTACK, Kisan Drones, and digital land records. Subsidies of 75%-100% for FPOs and research institutions could accelerate precision farming and improve farm-level productivity.

Food Security, Horticulture, and Supply Chains

India continues to lose 20%-30% of horticultural output due to inadequate storage and logistics. Budget 2026 is expected to address this gap through higher allocations for cold-chain infrastructure, integrated value chains, and export-oriented clusters.

The expansion of the National Mission for High-Yielding Seeds and efforts to double oilseed output to 70 million tonnes under NMEO are expected to support food security while opening investment opportunities in agri-infrastructure and rural supply chains.

Power, Grid Modernization, and Energy Security

India's power demand continues to rise sharply, making grid reliability a critical investment theme. The government is expected to roll out RDSS Phase-II, with tighter performance-linked incentives for discoms to address legacy losses and improve operational efficiency.

"In a strategic shift, Budget 2026 may announce Rs 20,000 crore toward nuclear energy R&D and Small Modular Reactors (SMRs). This signals a long-term commitment to clean baseload power and energy diversification, offering opportunities across engineering, EPC, and advanced manufacturing," said Siddharth Jain.

Renewables and the Green Transition

India's green transition remains firmly on track. The PM Surya Ghar rooftop solar scheme is expected to see an allocation increase of nearly 80% to around Rs 20,000 crore, targeting electrification of one crore households.

"To support renewable integration, incentives for Battery Energy Storage Systems (BESS) and grid-scale storage are likely to be enhanced. These initiatives are crucial for achieving India's 500 GW non-fossil capacity target by 2030, making renewables, storage, and grid infrastructure key investment themes," stated Siddharth Jain.

Strategic Manufacturing and MSMEs

The extension and recalibration of PLI schemes, particularly for semiconductors and electronic components, is expected to strengthen India's manufacturing ecosystem.

For MSMEs, which face an estimated Rs 20-25 lakh crore credit gap, the budget may expand credit guarantee schemes, ease compliance, and rationalize GST structures. Improved access to finance could significantly boost employment and domestic value creation.

Conclusion

Union Budget 2026-27 is likely to be a continuity budget—eschewing short-term populism in favor of long-term asset creation. With sustained capex, climate-smart agriculture, and energy independence at its core, the budget aims to insulate India from global shocks while reinforcing its high-growth trajectory. For investors, infrastructure, energy transition, agri-value chains, and manufacturing remain the most compelling themes to watch.