Finance Minister Nirmala Sitharaman will present the Union Budget 2026–27 on February 1. The Budget document is full of technical terms that can feel intimidating.
Gross domestic product (GDP) is the total monetary value of all final goods and services produced within a country’s borders over a specific period, usually a year or a quarter.
It includes goods and services meant for final consumption, not intermediate products.
Government services such as defence, education and public healthcare are included even if they are not sold in the market.
Unpaid household work and illegal activities are excluded.
GDP also factors in depreciation, or wear and tear, of capital assets.
Nominal GDP measures output at current prices and does not adjust for inflation.
Real GDP removes the effect of inflation or deflation and reflects the true growth or contraction in economic output over time.
Real GDP is more useful for tracking economic performance, while nominal GDP is used for financial comparisons.
Nominal GDP is used to compare economic size with other non-inflation-adjusted numbers such as:
Government debt
Fiscal deficit
Tax collections
Current account balance
When India is described as the fifth-largest economy globally, the ranking is based on nominal GDP.
For FY26, nominal GDP growth is estimated at 10.1 percent, taking the economy to about ₹357 lakh-crore. Total government expenditure is pegged at ₹50.6 lakh-crore, or about 14 percent of GDP.
What to watch in Budget 2026:
Whether FY26 expenditure targets are met
Nominal GDP estimate for FY27
Assumptions on tax buoyancy
The Finance Bill is introduced along with the Budget and contains proposals related to:
Levying new taxes
Changing existing tax rates
Amending tax laws
Under Article 110 of the Constitution, a Finance Bill is classified as a Money Bill.
Every year, several key laws are amended through the Finance Bill, including:
Income Tax Act
Customs Act
FRBM Act
FEMA
Prevention of Money Laundering Act
Capital receipts include:
Market borrowings
Loans
Disinvestment proceeds
These either increase liabilities or reduce government assets.
Revenue receipts mainly come from:
Tax revenue
Non-tax revenue such as dividends, interest income and service fees
What to watch:
RBI dividend estimate for FY27
Tax revenue is the government’s largest source of income and includes:
Direct taxes:
Personal income tax
Corporate tax
Capital gains tax
Indirect taxes:
GST
Excise duty
Customs duty
In last year's Budget estimates:
Personal income tax accounts for 22 percent of total inflows
GST contributes 18 percent
Corporate tax adds 17 percent
Recent income tax cuts have, however, slowed revenue growth.
Revenue deficit arises when revenue expenditure exceeds revenue receipts.
What to watch:
FY26 tax revenue shortfall
FY27 tax projections
Capital expenditure leads to asset creation or reduction of liabilities. It includes:
Spending on infrastructure and equipment
Equity investments
Loans to states and Union Territories
For FY26, capital expenditure is estimated at ₹11.2 lakh-crore, about 3.1 percent of GDP.
The Budget also refers to “effective capital expenditure”, which includes grants that result in asset creation.
What to watch:
Capital expenditure target for FY27
Revenue expenditure covers day-to-day government spending such as:
Salaries and pensions
Interest payments
Subsidies
This spending does not usually create assets.
What to watch:
Allocation for healthcare and education
Trend in interest payments as a share of total expenditure
Gross tax receipts refer to total tax collections after refunds.
Net tax receipts are what the Centre actually retains after sharing a portion with states, as mandated by the Constitution.
Fiscal deficit is the gap between total government expenditure and its non-borrowed receipts.
For FY26, the fiscal deficit target is 4.4 percent of GDP, while the revenue deficit target is 1.5 percent.
What to watch:
Whether these targets are met
Fiscal deficit goal for FY27, especially as the focus shifts to debt reduction
India’s fiscal framework is governed by the Fiscal Responsibility and Budget Management Act, 2003.
The FRBM Act aims to:
Keep public debt under control
Ensure fiscal discipline
Create space for private investment
Each year, the government presents:
A macroeconomic framework statement
A medium-term fiscal policy statement with rolling three-year targets
The original FRBM goal of a 3 percent fiscal deficit has been missed in recent years due to economic shocks.
Public debt includes total borrowings of the Centre and states.
A government panel has recommended:
A combined debt-to-GDP ratio of 60 percent
40 percent for the Centre and 20 percent for states
The Centre aims to bring its debt down to about 50 percent of GDP by FY31.