Union Budget of India with an emphasis on fiscal policy, key allocations, and implications for states and Union Territories — including trends from the previous year and expectations for the 2026-27 budget that is about to be presented on 1 February 2026 (Parliament Session is from 28 Jan to 13 Feb, then from 9 Mar to 2 Apr).

 Union Budget of India with an emphasis on fiscal policy, key allocations, and implications for states and Union Territories — including trends from the previous year and expectations for the 2026-27 budget that is about to be presented on 1 February 2026 (Parliament Session is from 28 Jan to 13 Feb, then from 9 Mar to 2 Apr). 

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🧾 Union Budget 2026-27 at a Glance (Planned & Expected)

📅 Presentation & Policy Overview

The Union Budget 2026-27 will be presented by Finance Minister Nirmala Sitharaman on 1 February 2026 — making it the first budget to be presented on a Sunday in Parliament. 

Pre-budget consultations included discussions with state and Union Territory representatives to align central allocations with local priorities. 

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📊 Fiscal Targets & Macroeconomic Context

📌 Budget Size & Fiscal Deficit (Projected)

Analysts estimate the total budget outlay for FY 2026-27 could be around ₹54.5 lakh crore, up from ₹50.65 lakh crore in the 2025 budget. 

Estimated fiscal deficit target for FY27 is ~4.0 – 4.1 % of GDP, down from last year’s 4.4 % planned. 

📌 Centre’s Fiscal Performance

As of late 2025, the Centre had already reached around 62.3 % of its fiscal deficit target for the year — indicating continued pressure on public finances. 

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🏛 Key Allocations with Federal & State Implications

🏗 Infrastructure & Capital Expenditure

Central capital expenditure (CapEx) is planned to be expanded significantly — estimated at ₹12.10 lakh crore or higher, reinforcing the capex-led growth model. 

50-year interest-free loans for states approximately ₹1.5 trillion are expected to continue, allowing states to invest in local infrastructure without increasing debt burden. 

Long-term budget support for connectivity (e.g., rural roads under PMGSY Phase IV), irrigation, and urban development may be part of infrastructure spending. 

👉 State & UT relevance: These interest-free loans, along with grants and scheme funds, help states/UTs implement projects in water supply, roads, education and health infrastructure based on their development plans. 

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📉 Taxation & Reforms with State Impacts

💰 Tax Changes (Expected/Projected)

No income tax for individuals earning up to around ₹12 – 12.75 lakh under the new regime, potentially boosting consumption and disposable income. 

Thresholds for TDS on rent and rents collection are expected to remain rationalized, which can influence rental markets across states. 

👉 State Effect: State revenues can indirectly benefit from higher economic activity and stronger consumption, though share of central taxes remains governed by FRBM and Finance Commission formulas.

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📡 Digital, Social & Strategic Policies

🧠 Digital Public Infrastructure (DPI)

DPI (like UPI, Aadhaar, DigiLocker, GeM) is seen as a foundational pillar of economic governance, boosting inclusion and efficiency. 

👉 State/UT takeaway: DPI platforms often involve state integration (e-governance, public service delivery). Increased focus facilitates collaborative implementation across jurisdictions.

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📍 State & Union Territory Focus Areas

📈 Pre-Budget State Demands

States like Arunachal Pradesh pressed for enhanced central support for transport, connectivity, and infrastructure to improve regional development. 

🌱 Green Budgeting Practices

Several states have started incorporating environmental tagging into budgets:

Bihar, Assam, Puducherry, Odisha, Rajasthan are advancing green budgeting efforts, a trend linked to central climate priorities too. 

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🧩 Federal Dynamics & Cooperative Fiscal Federalism

🤝 State Engagement

The finance ministry’s pre-budget consultation underscores an emphasis on aligning central strategy with state priorities, especially for infrastructure, social spending, and regional needs. 

📌 State Autonomy vs Central Support

While direct tax policy is a central subject, states play a key role in implementation of centrally sponsored schemes, and often complement these with their own resources.

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📍 Expected Themes for 2026-27 Budget

📌 Growth Reinforcement: CapEx push, schemes for MSMEs, rural development, and industry competitiveness. 

📌 Tax Reform Continuity: Simplification and relief for taxpayers, boosting demand. 

📌 State-Indexed Support: Continued interest-free loans and incentive alignment to support state-led investments.