As Finance Minister Nirmala Sitharaman prepares to present the Union Budget for 2026-27, market participants are closely monitoring how India plans to navigate the delicate balance between supporting economic growth and maintaining fiscal discipline. According to Axis Securities, the upcoming budget will likely prioritize sustaining growth momentum without compromising medium-term fiscal consolidation objectives, particularly given the current environment of global uncertainties and volatile capital flows.

Growth Outlook and Economic Fundamentals

India's economic performance continues to demonstrate resilience, with real GDP growth estimated at around 7.40% in FY26. This growth trajectory has been supported by sustained government capital expenditure, robust services exports, and gradual improvement in private investment sentiment. However, Axis Securities has highlighted concerns regarding moderation in consumption demand and persistent global risks, which necessitate a carefully calibrated fiscal strategy for the upcoming budget period.

Capital Expenditure Strategy and Sectoral Focus

Axis Securities expects capital expenditure to remain the cornerstone of the government's growth strategy in Budget 2026-27. The brokerage anticipates allocations in the range of ₹12-13 trillion, representing a 10-15% year-on-year increase from previous levels.

For global investors, sustained public capital expenditure is viewed as critical for encouraging private investment participation and supporting medium-term earnings visibility, particularly within infrastructure-linked sectors.

Fiscal Consolidation Targets

Axis Securities expects the government to maintain its commitment to fiscal consolidation, targeting a fiscal deficit of approximately 4.20-4.40% of GDP for FY27. Achieving this target range would demonstrate strong policy credibility to both domestic and international investors, reinforcing India's position as a stable investment destination amid global economic volatility.

Consumption Support and Rural Development

The brokerage has identified balancing capital expenditure-led growth with consumption support as one of the key challenges for Budget 2026-27. With urban consumption showing signs of moderation and rural demand remaining uneven, the government may implement support measures through several channels:

• Rural infrastructure development programs
• Enhanced agriculture support mechanisms
• Employment generation and skilling initiatives
• Targeted welfare spending programs

Revenue Generation and Fiscal Buffers

Axis Securities expects disinvestment and asset monetization to play important roles in supporting non-tax revenues, with potential targets ranging from ₹50,000-70,000 crore. While historical execution has faced challenges, the brokerage suggests that a clearer and time-bound roadmap could receive positive market reception.

The brokerage also highlighted the potential role of higher-than-budgeted dividend transfers from the Reserve Bank of India as a key fiscal buffer, which could help offset revenue pressures and limit market borrowings without compromising growth expenditure allocations.

Structural Reforms and Market Expectations

Beyond headline fiscal numbers, Axis Securities indicated that markets will closely monitor signals regarding structural reforms across multiple areas. These include ease-of-doing-business improvements, labor and logistics efficiency enhancements, digital public infrastructure development, and legal and regulatory simplification measures. Such reforms are considered essential for boosting productivity, attracting long-term foreign capital, and sustaining India's investment-led growth trajectory.

Tax experts are urging the government to establish clear perquisite taxation rules for electric and hybrid vehicles in the upcoming Budget 2026, as employers increasingly struggle with uncertainty over how to tax EV benefits provided to employees.

Current Tax Framework Creates EV Uncertainty

For decades, employer-provided petrol and diesel cars have followed established tax guidelines with fixed monthly perquisite values based on engine capacity and limited variables. However, electric vehicles break this simplicity as they lack engine capacity for calculation anchoring, have varying charging costs between employees, and involve complex battery-related expenses that don't fit existing perquisite rules.

According to Deloitte, this absence of specific guidance has become a significant issue for employers who must deduct tax correctly but lack clear benchmarks, exposing them to risks from both inadequate and excessive deductions.

Impact on Corporate EV Adoption

The regulatory ambiguity is actively deterring employers from including electric and hybrid vehicles in standard corporate car policies, slowing EV adoption within organizations despite government incentives available under the Faster Adoption and Manufacturing of Electric Vehicles (FAME) and allied schemes.

Puneet Gupta, Director at S&P Global, explained: "In ICE vehicles valuation are clearly defined, whereas in Electric vehicles, it is a grey area. This is because there are a lot of unknowns, resulting in difficulty in calculating the valuation. The government can jump and provide EV-specific rules, and this will reduce compliance risk, ease tax withholding decisions for employers, and avoid interpretational disputes later."

While the issue hasn't reached critical levels due to limited EV penetration in corporate fleets, increasing company adoption driven by sustainability targets and employee demand is making inconsistent tax practices more problematic.

Expert Recommendations for Budget 2026

Tax professionals are calling for the Central Board of Direct Taxes (CBDT) to notify clear regulations specifically addressing electric vehicle perquisite taxation. According to Divya Baweja, Partner at Deloitte, such clarity would help employers accurately value EV perquisites while enabling employees to understand their tax liability clearly.

Key Policy Recommendations:

• Charging Expenses: Explicit allowance for reimbursement of public charging costs and home electricity consumption
• Battery Costs: Clear framework for factoring battery usage and replacement expenses
• Hybrid Vehicles: Distinct guidelines separating fuel-driven and electric components
• Framework Continuity: Focused changes rather than complete overhaul of existing car perquisite structure

Alignment with Government EV Push

Experts emphasize that the expectation for Budget 2026 is not additional incentives but regulatory clarity that aligns perquisite taxation with the government's established electric mobility initiatives. The proposed changes would close existing gaps appearing on corporate balance sheets while maintaining consistency in the current tax structure and reducing potential disputes over EV benefit valuation.