A few years ago, investors used to watch the Budget hoping for income-tax breaks, capital gains concessions or excise duty cuts which could mean cheaper household items. However, with Goods and Services Tax (GST) done and dusted, income-tax payers migrated to a new regime and capital gains tax rates standardised, the Budget has very few goodies left to offer to you as a taxpayer.
While you can no longer look to the Budget for tax sops, it could have announcements that indirectly impact your investments. Here are five important cues that investors need to look out for, from Budget 2026.
Deficit, debt and bond returns
If you believe that interest rates on your loans and debt investments are decided by Monetary Policy Committee (MPC) actions, then you don’t have the full picture. For debt investors, market interest rates matter more than official repo rates.
In the past year, though the MPC has cut repo rates by 125 basis points, market yields have barely moved. The yield on the 10-year G-Sec (government security), which was at 6.8 per cent in January 2025, is at 6.7 per cent now, just a 10-basis points dip. That on five-year G-Secs is down from 6.6 per cent to 6.4 per cent. The yield on the five-year AAA-rated corporate bond, which was at 7.7 per cent, is now at 7.5 per cent. This goes to show that market interest rates are not entirely decided by repo rates (which is just the rate at which banks borrow overnight money from RBI).
Market yields are decided by the demand and supply of bonds in the market. The government is the largest borrower in the Indian bond market. Therefore, demand-supply of G-Secs sets the floor for yields on all other bonds.
The Budget offers the first official estimate of how much the Central government plans to borrow in any given financial year. The size of the fiscal deficit decides how much it needs to borrow. The Centre breaks up its projected borrowings into dated securities, treasury bills, small savings schemes and other sources, which decide the demand and supply of each instrument.
Therefore, as an investor, you should watch out for four Budget numbers that will influence your debt returns:
* Whether the fiscal deficit target for FY26 is met
* Fiscal deficit target in absolute and percentage terms for FY27
* Size of borrowings needed to meet the FY27 deficit
* Composition of borrowings in terms of market and non-market borrowings.
In the February 2025 Budget, the Centre projected its FY26 fiscal deficit at ₹15.68 lakh crore. Based on a nominal GDP growth estimate of 10.1 per cent, it set the fiscal deficit target at 4.4 per cent. Now with low inflation, nominal GDP growth for FY26 is expected at just 8 per cent. Therefore, it needs to be seen whether this deficit target is met despite a lower denominator.
Last year, the Centre had indicated a shift from a fiscal deficit target to a government debt-to-GDP target. Whether this leads to a higher or lower fiscal deficit number will also be watched by bond markets. The market expects the Budget to set the fiscal deficit target for FY27 at 4.2-4.3 per cent. If it turns out higher, bond yields will rise, as the market factors in higher supply of bonds. If it is lower, bond yields/market interest rates will fall. The Centre’s total borrowings were projected at ₹15.6 lakh crore and market borrowings at ₹11.53 lakh crore for FY26.
If FY27 borrowings turn out much higher, again this would be cue for market yields to rise. A spike in market yields can lead to price erosion in your existing bonds. But it will mean higher returns from new bonds and deposits you invest in, in the year ahead.
Capital outlays by sector
Post-Covid, as the private sector took its own sweet time to dust off its capex plans, it was the Central government that propped up the investment leg of GDP with its rising capital outlays.
Between FY20 and FY26 (Budget estimates), the Centre’s capital expenditure and grants-in-aid for creation of capital assets spiked from ₹5.2 lakh crore to ₹15.5 lakh crore, rising from 2.6 per cent of GDP to 4.3 per cent. In recent years, the government (Centre plus States) has accounted for about 25 per cent of the total capital investments in the economy (Gross Fixed Capital Formation), while households have contributed 42 per cent (mainly through housing, vehicles etc) and private sector enterprises have chipped in with 33 per cent.
However, from here on, it looks likely that the Central government will need to slow down the growth in its capital outlays. One, with generous cuts handed out both in income tax and GST, the Centre’s revenues are now set to expand at a slower pace than they did in the five years post-Covid. Two, the bulk of government capex is directed towards sectors such as roads and railways, where spending avenues now appear to be limited. Three, with Pay Commission and welfare spending likely to spike up revenue expenditure from FY27, capex may be constrained by the need to keep deficit and debt-GDP targets.
In FY26, the Centre allocated ₹11.2 lakh crore towards its own capital expenditure and supplemented the resources of PSUs (Public Sector Undertakings) by ₹4.31 lakh crore to fund their capex. Of the ₹11.2 lakh crore, ₹2.72 lakh crore was allocated to roads and highways, ₹2.52 lakh crore to Railways, ₹1.8 lakh crore to defence services and ₹37,623 crore to housing and urban affairs, while ₹1.7 lakh crore was transferred to States.
In the upcoming Budget, investors need to check for expansion in the overall capital outlay number as well as changes to individual sector allocations. FY27 numbers bear watching to know if the Centre plans to keep up its capex spending or is now looking to hand over the baton to the private sector.
PLI and customs changes
As tariff threats and trade wars loom over Indian industry, the Budget may attempt to neutralise these threats through tariff counter measures and production-linked incentives (PLIs). PLIs are capital subsidies paid out to private firms which put up plants for industrial products that can serve as import substitutes or diversify India’s export basket. PLIs in sectors such as electronics have proved quite successful in enhancing domestic value-added for imported items.
The accompanying table shows the key PLIs which received allocations in the previous Budget. Investors need to look for higher allocations to these existing segments as well as new PLI announcements in the upcoming Budget. Though the PLI allocations may seem small, they make a significant difference to the fortunes of individual companies because they are zero-cost capital grants from the government to just a few players in a sector.
While most Budget viewers are glued to the Finance Minister’s speech, proposals with important implications for industry often lurk in the fine print. This time around, with the US breathing down India’s neck on tariffs and India busy inking Free Trade Agreements with numerous trade blocs (Eurozone, the UK, the UAE), customs duty tweaks in the Budget will make for interesting reading. The items singled out for duty tweaks will reflect sectors in which India is willing to dismantle trade barriers for friendly trade partners, as also those where tariff barriers are being erected afresh as retaliatory shots to hostile trade partners. Customs duty notifications with explanatory notes are separately presented with Budget documents.
Pay Commission effect
Once in every 10 years, the Central government constitutes a Central Pay Commission which decides on pay hikes for government employees. Given that these revisions come about once in a decade, they tend to give a substantial lift to government employee compensation. The Central government directly employs about 36 lakh personnel.
Public Sector Undertakings and State governments then take cues from the Pay Commission to revise their own salary structures, which in turn sets the floor for private sector salaries as well. Therefore, Pay Commission awards usually end up impacting all salaried employees.
The Seventh Pay Commission, implemented from January 2016, revised basic pay for Central government employees by a fitment factor of 2.57 (a hike of 157 per cent in basic pay). The minimum basic pay was revised from ₹7,000 to ₹18,000 per month, with the average increase in pay, allowances and pensions estimated at 23.5 per cent. The Eighth Pay Commission has been constituted in October 2025 and is tasked with submitting its report within 18 months. Its recommendations, however, take effect from January 1, 2026.
The Centre may choose to provide for these payments in the upcoming Budget. If it does, it would reflect in Establishment revenue expenses, which were budgeted at ₹8.52 lakh crore in FY26. Establishment expenses already made up 17 per cent of the Centre’s total Budget outlay in FY26. Therefore, a significant bloat in this number — while good for government employees and consumption stocks — could have adverse implications for the fiscal deficit.
Duty on gold/silver
With foreign portfolio investors (FPIs) on a selling spree, finfluencers seem to be clamouring for Budget concessions on capital gains tax, especially for FPIs. Whether this will come about is hard to say.
However, with recent price gains leading to the runaway popularity of gold and silver exchange traded funds, there are worries about bullion imports expanding the country’s current account deficit and adding to pressure on the rupee. Precious metal imports have surged ever since the Centre slashed customs duties on gold and silver from 15 per cent to 6 per cent in the 2024 Budget.
Yes, restoring higher duties will bloat the Centre’s Sovereign Gold Bond obligations. But it may decide that the trade-off is worth it, if imports bring in higher customs revenues and discourage the gold/silver rush.
The author is a Contributing Editor
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Published on January 29, 2026
