The upcoming Budget 2026 is positioned to strengthen India's agriculture sector through enhanced allocations and comprehensive reforms, marking a strategic shift toward productivity-led agricultural growth. With agriculture contributing approximately 18-20% to GDP, the government aims to address ongoing challenges including climate variability, input costs, and market access through focused policy interventions.

Enhanced Budget Allocations

Agriculture allocations have demonstrated consistent growth trajectory, expanding from ₹21,933.00 crore in FY 2013-14 to over ₹1.27 lakh crore currently. For Budget 2026-27, experts anticipate further increase in agriculture budget allocation.

The increased funding is expected to support key government schemes including PM-KISAN, Pradhan Mantri Fasal Bima Yojana, and irrigation initiatives under PM Krishi Sinchayee Yojana. This allocation strategy reflects the government's commitment to enhancing farmer incomes and agricultural sustainability.

New Seeds Bill and Quality Control

The government plans to introduce comprehensive seeds legislation during the budget session, targeting the widespread issue of counterfeit and low-quality seeds in the market. The proposed bill establishes stringent quality control measures with significant enforcement mechanisms.

This legislation aims to guarantee seed quality, protect farmers against agricultural losses, and enhance overall productivity. The bill is expected to benefit established seed companies including Kaveri Seeds, Mangalam Seeds, and Bombay Super Hybrid Seeds. Fertilizer companies such as UPL Ltd, PI Industries Ltd, Sumitomo Chemical India, Bayer CropScience Ltd, and Dhanuka Agritech Ltd are also positioned to gain from improved quality standards.

Infrastructure and Technology Initiatives

Budget 2026 is expected to introduce Kavach 4.0, an advanced automatic train protection system, alongside continued electrification of remaining railway routes. The transportation sector aims to increase rail freight modal share from current 26% to 45% by 2030, supporting agricultural logistics efficiency.

India's logistics ecosystem has shown meaningful improvement, with logistics costs declining to approximately 13-14% of GDP. Cold-chain capacity expansion and strengthened rural connectivity have contributed to reduced post-harvest losses and improved price discovery mechanisms.

Export Focus and Global Market Access

India's agricultural and food exports currently stand at approximately ₹50-55 billion annually. Budget 2026 is expected to emphasize export facilitation, faster approval processes, and support for value-added agricultural products to help farmers and agricultural companies access global markets more effectively.

The policy framework is anticipated to support companies with integrated global supply chains, particularly those focused on crop protection, specialty chemicals, and nutrient efficiency. Integrated agri-input players like Coromandel International and Rallis India are positioned to benefit from the continued emphasis on efficiency-led growth strategies.

Market Perspective and Investment Outlook

The budget approach represents a transition from headline allocations to balance-sheet quality and earnings visibility across the agricultural value chain. Investor focus is shifting toward companies exposed to fertilizers, agro-chemicals, farm mechanization, irrigation equipment, and agri-logistics, where demand is driven by structural factors including higher cropping intensity, precision farming, and rural income normalization.

India's fiscal policy is expected to become less contractionary from FY27 as the Centre prepares to pivot from a fiscal-deficit-focused approach to a debt sustainability framework, according to a pre-Budget note by BofA Securities. The shift comes as the government remains on track to meet its medium-term fiscal consolidation targets despite slower nominal GDP growth and sweeping tax cuts.

Fiscal Deficit Projections and Policy Shift

The Finance Minister will present the Union Budget for FY2026-27 on February 1, with the central government likely to meet its FY26 fiscal deficit target of 4.40% of GDP. BofA projects a modest reduction in the deficit to 4.30% of GDP in FY27, signaling a pause in aggressive consolidation and a move towards maintaining fiscal support in line with economic growth.

According to the report, stronger capital expenditure execution in FY26, combined with lower energy prices that helped contain subsidy outgo, has provided the government with fiscal headroom. Capital spending is expected to rise broadly in line with nominal GDP growth, which BofA estimates will rebound to 10.10% year-on-year in FY27.

Adoption of Debt Targeting Framework

A key structural shift anticipated from Budget 2026 is the adoption of a debt-targeting framework. The government is expected to aim for a central debt-to-GDP ratio of 55.00%, down from an estimated 56.10% in FY26, after achieving its earlier commitment of keeping the fiscal deficit below 4.50% of GDP.

This framework shift is designed to:

• Make the fiscal position less contractionary while maintaining sustainability
• Ensure spending rises broadly in sync with the nominal growth cycle
• Prevent fiscal policy from becoming a drag on economic activity

Revenue Projections and Non-Tax Income

On the revenue front, BofA expects FY26 collections to undershoot Budget Estimates by around 2%, largely due to personal income tax and GST cuts. However, this pressure is likely to be partly offset by a surge in non-tax revenues, particularly dividends from the Reserve Bank of India and public sector enterprises.

BofA sees scope for revenue growth of 10.70% year-on-year, aided by reasonable growth in direct taxes, mild recovery in GST and higher provisions for dividends and divestment inflows. The overall revenue-to-GDP ratio is expected to rise modestly to 9.60% in FY27 from 9.50% in FY26.

Expenditure Priorities and Capital Allocation

In terms of expenditure priorities, defence and capital spending are likely to remain in focus. BofA sees FY27 capital expenditure rising to ₹12.50 lakh crore, or 3.20% of GDP, with strategic sectors continuing to attract higher allocations.

Priority sectors for capital expenditure include:

• Defence
• Railways
• Shipbuilding

Sectors expected to see subdued spending:

• Roads projects
• Housing initiatives
• Rail infrastructure

The brokerage does not expect provisioning for the Eighth Pay Commission in FY27, with implementation likely to begin in FY28.

Divestment Strategy and Funding

Divestment is expected to play a larger role in bridging funding gaps. While FY26 disinvestment receipts have lagged, BofA expects the FY27 divestment target to be doubled to ₹80,000 crore, reflecting increased reliance on non-tax and non-debt capital receipts, including the proposed IDBI Bank stake sale.

This strategic shift towards a debt-targeting framework represents a significant evolution in India's fiscal policy approach, balancing the need for fiscal sustainability with economic growth support.