The Union Budget of India 2026, officially known as the Annual Financial Statement, is scheduled to be presented by Finance Minister Nirmala Sitharaman in the Parliament, usually on February 1, 2026. It outlines the government’s projected revenue and expenditure for the Financial Year 2026–27 (FY27), setting the nation’s economic direction for the year.
This annual statement is more than just numbers, it affects taxpayers, businesses, investors, industries, and ordinary citizens alike. Ahead of the presentation, expectations and policy discussions around taxation, spending priorities, economic growth, and structural reforms are making headlines.
Why Understanding Terminology Matters
Before diving into the Budget details, it’s crucial to know some core terms that recur in reports, expert opinions, and economic commentary. These terms help you interpret what the government is doing, whether it’s spending on infrastructure, changing taxes, or managing debt.
The Union Budget is essentially the Government of India’s yearly financial plan. It outlines how much money the government expects to earn during the year and how much it plans to spend on various sectors such as health, defence, education, agriculture, infrastructure, and welfare schemes.
Just as households prepare monthly budgets to manage income and expenses, the government prepares the Union Budget to ensure smooth functioning of the country. It also lays out the government’s vision for economic growth, reforms, and policy direction for the upcoming financial year.
These are the money or earnings that the government receives regularly, without selling assets or taking loans. Main sources include:
Important point: These receipts do not increase any liability for the government; meaning they don’t have to be returned like loans.
Revenue expenditure refers to the routine or day-to-day spending of the government that doesn’t result in the creation of any long-term assets. This includes:
Similar to monthly household expenses such as rent, groceries, and electricity bills, revenue expenditure is essential for maintaining current operations. However, since it does not create durable assets, high levels of revenue expenditure without matching revenue receipts can strain the government’s finances.
Capital receipts include funds that either create a liability for the government or reduce its assets. This category mainly includes loans and borrowings, recoveries of past loans, and proceeds from selling government stakes in public sector companies (disinvestment). Unlike revenue receipts, capital receipts are not regular or recurring in nature. They often result from special financial activities such as raising funds through the issuance of bonds or selling assets. Since many capital receipts involve borrowings, they may increase the government’s future repayment burden.
Capital expenditure represents spending that helps create long-term productive assets for the country. These expenditures include:
Capex is crucial because it enhances the country’s production capacity, facilitates trade, improves logistics, and raises the overall quality of life. Economic experts consider higher Capex as a sign of future growth potential since these investments generate jobs, attract private sector investment, and boost GDP over time.
This shows how much extra money the government needs beyond what it earns.
Formula:
Fiscal Deficit = Total Expenditure – Total Receipts (excluding borrowings)
If the government spends more than it earns, it borrows money; just like a family would take a loan if expenses exceed income.
Why does it matter?
Governments try to keep this deficit within safe limits for economic stability.
This indicates whether the government’s regular income is enough to cover its regular expenses.
Formula:
Revenue Deficit = Revenue Expenditure – Revenue Receipts
If the revenue deficit is high, it means the government is borrowing even for day-to-day expenses, which is not healthy because it means no money left for development.
Primary deficit provides a clearer picture of the government’s borrowing needs by excluding interest payments on previous loans.
Formula:
Primary Deficit = Fiscal Deficit – Interest Payments
Since a significant portion of government spending often goes toward interest payments, the primary deficit helps understand how much borrowing is happening due to current economic policies rather than past debt burdens. A lower primary deficit indicates better fiscal discipline, while a higher one signals increased reliance on fresh borrowings to finance ongoing expenses.
Effective revenue deficit refines the revenue deficit figure by removing grants given for the creation of capital assets. For example, if the central government gives grants to state governments for building roads or irrigation systems, these are technically classified as revenue expenditure but actually result in asset creation. By excluding such items, ERD helps differentiate between pure consumption and productive expenditure. This makes it easier to assess the true quality of government spending.
Direct taxes are taxes paid directly by individuals or companies to the government, such as income tax and corporate tax. They are linked to income or profits and cannot be passed on to others.
On the other hand, indirect taxes like GST and customs duties are imposed on goods and services and are collected by businesses but ultimately paid by consumers in the form of higher prices.
Customs duty is a type of tax imposed on goods that are imported into or exported out of the country. Governments often use customs duty to protect domestic industries from cheap foreign competition, generate revenue, and regulate international trade. For instance, higher customs duty on imported electronics encourages manufacturing within India, supporting local industries and jobs. At the same time, lower duties on essential imports can help reduce costs for consumers and businesses.
Finance Bill: The Finance Bill is introduced in Parliament along with the Union Budget and contains all tax-related proposals such as changes in income tax slabs, customs duty, and GST rules. Once this bill is passed, the proposed tax changes become legally enforceable.
Appropriation Bill: The Appropriation Bill, on the other hand, gives the government permission to withdraw funds from the Consolidated Fund of India to meet budgeted expenses.
Both bills are essential for implementing the Budget and ensuring that government spending and taxation are legally authorised.
Fiscal policy refers to how the government uses taxation, public spending, and borrowing to influence the economy.
Fiscal policy plays a key role in managing employment levels, controlling inflation, encouraging investments, and promoting long-term growth.
Although not part of the Budget, monetary policy complements fiscal policy and is managed by the Reserve Bank of India (RBI). It focuses on controlling inflation, maintaining currency stability, and ensuring adequate money supply by adjusting interest rates and liquidity levels in the banking system. Together, monetary and fiscal policies ensure balanced economic growth. For example, if fiscal policy increases growth through higher spending, monetary policy may need to ensure inflation remains under control.
A surplus budget occurs when the government’s income exceeds its expenditure. Although rare, surplus budgets indicate strong financial health and are more common in developed countries.
Surplus Budget
Income > Expenditure → Rare, usually in developed economies
A deficit budget, on the other hand, occurs when expenditure exceeds income, forcing the government to borrow.
Deficit Budget
Expenditure > Income → Government borrows to meet gap (most common)
Most developing economies, including India, operate with deficit budgets to fund welfare programs, infrastructure projects, and growth initiatives. The key is to ensure that borrowed money is used productively rather than for routine consumption.
While the official text will only be revealed on the presentation day, various stakeholder expectations point to key policy issues:
These themes show how the Budget is not just about numbers; it is a platform for economic strategy and priorities.
Understanding the key terminologies, from fiscal deficit to capital expenditure, empowers you to grasp not just what the Union Budget says, but why it matters. The Union Budget 2026 is shaping up to be a critical moment for India’s economic agenda, with implications for growth, taxation, spending priorities, and reforms across sectors.
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