As India’s union budget approaches, global and domestic pressures weigh heavily

India’s Union Budget for 2026, due to be presented on February 1, 2026, arrives as global markets grapple with renewed trade uncertainty triggered by tariff actions by the US.

Escalating protectionist measures have disrupted supply chains, weakened export demand and complicated policy choices for emerging economies, including India, which remains deeply integrated into global trade flows despite its large domestic market.

The renewed tariff push from Washington has sharpened investor focus on how India’s Ministry of Finance calibrates fiscal support for export oriented sectors such as engineering goods, textiles, chemicals and electronics.

Exporters face pressure from higher duties in key markets and volatile currencies, raising expectations that the budget will prioritise incentives, credit support and infrastructure spending to preserve competitiveness while limiting fiscal slippage. Macroeconomic conditions at home add another layer of complexity.

India’s growth remains among the fastest in major economies, but consumption momentum has shown signs of unevenness. Private investment has improved but remains sensitive to global demand signals and commodity prices.

As a result, investors are watching for signals on whether fiscal policy will lean towards near term stimulus or longer term consolidation anchored in capital expenditure. Against this backdrop, middle class and salaried taxpayers are once again expected to be at the centre of political and economic debate.

Taxpayers anticipate some form of personal income tax relief to bolster disposable incomes and sustain consumption. Simplification of tax slabs, higher standard deductions or adjustments to exemption thresholds are seen as possible measures, though analysts caution that any broad based relief would need to be balanced against revenue constraints. Compliance reform is another area drawing attention ahead of the budget.

Businesses continue to flag the complexity of India’s tax administration, particularly the layering of Tax Deducted at Source(TDS) and Tax Collected at Source(TCS) requirements. Calls for rationalisation of TDS and TCS rates, fewer reporting categories and faster refunds have intensified, with the argument that compliance costs weigh disproportionately on smaller firms and exporters navigating tight margins.

Trade policy considerations extend beyond tariffs imposed by external partners to India’s own approach to energy imports, especially crude oil. Since 2022, India has emerged as a major buyer of discounted Russian oil, reshaping its import basket and cushioning domestic fuel prices.

However, growing geopolitical pressure and secondary sanctions risks have complicated the outlook. According to a report by Reuters, US Treasury Secretary Scott Bessent has indicated that 25% of the 50% tariffs applicable on India may be removed now that India is sharply reducing its crude oil purchases from Russia.

The defence sector has also moved higher up the fiscal agenda following Operation Sindoor, which underscored the importance of preparedness and domestic manufacturing. Expectations are building that capital outlays for defence will rise, with a sharper focus on indigenous production, research and procurement reforms.

Listed defence manufacturers and suppliers are closely tracking signals from India’s Ministry of Defence on order pipelines and budgetary commitments. Public sector energy producers such as Oil and Natural Gas Corp Ltd (NSE:ONGC), Indian Oil Corp Ltd (NSE:IOC) and Bharat Petroleum Corp Ltd (NSE:BPCL) may also be affected by broader policy choices on energy security and tariffs.

Higher budgetary support for exploration and strategic reserves could offset some of the risks linked to volatile global oil prices and shifting trade alignments. At the same time, any move to alter fuel taxation could have knock on effects for inflation and household spending. Financial markets are likely to respond not only to headline allocations but also to the quality of fiscal messaging.

India’s commitment to medium term deficit reduction remains a key anchor for sovereign bond investors, even as global borrowing costs stay elevated. A credible glide path that preserves capital expenditure while containing revenue spending would be viewed favourably by rating agencies and foreign portfolio investors. For equities, the budget’s impact may be uneven across sectors.

Exporters and manufacturing firms would benefit from targeted incentives and logistics spending, while consumer focused companies could gain from tax relief measures that lift demand. Energy and defence stocks will be sensitive to policy cues on tariffs, sourcing and procurement.