Union Budget 2026: Does Budget Affect The Rupee?

The Union Budget presentation is one of the most closely watched events of the year. From expectations of tax relief to announcements of new policies and welfare schemes, the Budget offers a clear snapshot of the government's economic priorities for the upcoming fiscal year. Beyond taxes and schemes, what matters to the financial markets the most is its impact on the Indian rupee. Currency traders and investors keep a close track of Budget announcements to calculate government spending.

Just weeks before the Budget, the rupee fell sharply against the US dollar. It weakened by 63 paise, closing at Rs 90.86 per dollar on January 16. This was the biggest single-day fall in nearly two months. Traders believe the rupee could slide towards 91 per dollar, and may even break its all-time low of 91.08.

Can Union Budget affect the Indian rupee?

Yes, the Union Budget can significantly affect the Indian rupee, both in the short term and over the longer run.

One of the first things markets look for in the Budget is the fiscal deficit, the gap between what the government earns and what it spends. If there is a lower deficit, it boosts investor confidence and supports the rupee, while a higher-than-expected deficit worries markets and weakens the rupee.

Another reason is the tax changes. Measures such as higher capital gains taxes can impact foreign investment flows. Investor-friendly policies tend to attract foreign capital and strengthen the rupee, while higher taxes or not-so-friendly policies can lead to outflows, which can weaken the currency.

Markets also closely examine where the government is spending money. Higher spending on infrastructure, manufacturing, exports, and job creation improves long-term growth. But if spending rises without clear revenue backing, it can hurt the rupee.

In addition to this, when import duties are raised, imported products become more expensive so people and companies tend to import less. Since imports are paid for in US dollars, lower imports mean less demand for dollars in the market. This can ease the pressure on the rupee, helping it stabilise or stop falling further.