NEW DELHI,31 Jan 2026 : The second General Budget of the Modi government’s third term is shaping up less as a welfare-heavy political document and more as a market-calibrated economic statement, reflecting the administration’s urgency to steady growth in an increasingly hostile global environment
Faced with an escalating US-led trade and tariff confrontation, weakening foreign capital inflows, and a visible slowdown in private investment, the government appears poised to place economic reforms, particularly tax and capital market reforms, at the centre of its fiscal strategy.
At the heart of Budget 2026 is the challenge of restoring investor confidence. Foreign Direct Investment has lost momentum over the past one year, while domestic private capital expenditure remains cautious despite repeated policy assurances.
Policymakers now seem to recognise that headline stability is no longer enough. Structural signals, especially in taxation and market regulation, are required to bring back risk appetite among both domestic and foreign investors.
Market participants expect the government to announce bold measures on capital gains taxation. There is growing anticipation that Long-Term Capital Gains (LTCG) tax could be substantially rationalised to make long-horizon investments more attractive.
Equally significant would be the rollback or complete removal of the Securities Transaction Tax (STT), a long-standing demand of investors who argue that the levy discourages high-frequency participation and reduces India’s competitiveness against other emerging financial markets.
Such steps would underscore the Modi government’s continued tilt towards market-led growth rather than state-driven expansion. By easing the tax burden on capital and trading, the government aims to unlock liquidity, improve market depth, and attract Foreign Institutional Investors (FIIs), whose flows have become increasingly sensitive to global interest rate cycles and policy predictability.
However, the reform push is unfolding alongside unmistakable political calculations. With five states heading into assembly elections this year, central allocations are expected to be strategically aligned with electoral geography.
Enhanced spending on infrastructure, social welfare schemes, and employment-linked programmes in these poll-bound states is likely to feature prominently, allowing the government to project development-led governance while reinforcing its political footprint.
This dual-track approach—market appeasement at the Centre and targeted spending in states—highlights the government’s attempt to balance reformist ambition with electoral pragmatism.
Critics argue that such selective generosity risks distorting fiscal priorities, while supporters contend that regional stimulus is necessary to sustain demand in an uneven recovery.
Fiscal discipline remains another critical constraint.
With global rating agencies and bond markets closely watching India’s deficit and debt trajectory, the government has limited room for overt populism. Any expansionary moves will need to be offset by credible commitments to consolidation, asset monetisation, and improved tax compliance.
Beyond taxation, the Budget is also expected to reinforce the manufacturing and export agenda, especially as global corporations look to diversify supply chains away from China. Yet experts caution that incentives alone will not suffice; regulatory certainty, contract enforcement, and faster dispute resolution will be key to converting geopolitical opportunity into real investment.
Ultimately, the second Budget of Modi 3.0 is less about dramatic announcements and more about strategic signalling. It will reveal whether the government is prepared to prioritise deep economic reforms to revive investment, even as it navigates electoral pressures and global uncertainty. In doing so, the Budget will offer a clear answer to a central question confronting Modi 3.0: markets first, voters first—or a carefully engineered mix of both.
[Writer is Senior Journalist and Political Commentator]
Pictures credit social media
