Resilience first: This budget could seal Sitharaman’s legacy by focusing on economic sovereignty

Or, consider this: water being sprinkled in the air near AQI meters in Delhi to make the pollution levels ‘look’ better; or better still, solving our big existential problem of air pollution by simply changing Indian standards to make high AQI levels seem normal. Voila!

These are just a couple of examples of the absurdity of governance we witness across the country. All this, when the rupee has depreciated by about 7% over the year, our cities are becoming increasingly unliveable, foreign portfolio investors are pulling out from our stock market, geopolitics is raising serious concerns, job creation at scale remains a challenge, AI is causing employment and other uncertainties, inequality is rising, and more.

Thankfully, finance minister Nirmala Sitharaman has not succumbed to such surreal theatrics whilst steering the Indian economy over difficult years. As I had written last year, the budget for 2025-26 signalled consistency in the government’s economic approach and displayed the courage to signal fundamental changes needed to address many key structural issues—such as a light-touch, trust-based regulatory framework—that would create the right conditions to attract investments.

That, though, was in 2025— before Trump. The world has changed since then for the worse, and I would earnestly look forward to our FM making a much bolder statement of intent in the 2026-27 budget in terms of a structural change in the policy framework to handle US protectionism, global uncertainty, power play among big powers, global risks from turmoil in West Asia, the emergence of an ‘Islamic Nato,’ currency volatility, etc.

India, therefore, must move away from a business-as-usual budget with incremental changes to one that signals resilience building and acts as a shock absorber cum survival kit, while still promoting growth and capital flows.

To my mind, this has the following fundamental components:

One, build strategic self reliance by building domestically what can be weaponized geopolitically. We must not revert to protectionist policies of the past, but build this capability through targeted production and capex-linked incentives, plus R&D grants in the critical supply chains—like semiconductors, rare earth minerals, defence electronics, power equipment, solar and battery components.

We can model our own critical manufacturing zones on China’s industrial clusters by providing 10-year tax holidays, plug-and-play plots of land and single-window clearances. Mandates for domestic procurement and clauses for tech transfer are critical.

Two, promote energy security, as this is the first casualty of geopolitics. This can take various forms from reducing import dependence and building strategic reserves (for oil, gas and critical minerals). Buying stakes in energy businesses abroad and partnering with South Africa and Australia, among others, will help create stockpiles.

Three, create a buffer for absorbing fiscal shocks through a contingency fund, keeping the fisc below 4.5% of GDP and revenue assumptions conservative. Singapore and Norway have a stabilization fund designed to be used only during a crisis. We also need debt maturity reforms and issuance of even longer duration bonds (30 years plus) for financial system stability. Inflation-linked bonds could be explored too.

Four, reduce dependency on any specific trade bloc and push for export-import credit, insurance and greater investment in logistical facilities like ports and warehouses.

Five, keep domestic demand as the key driver of economic growth. This is challenging, given the K-shaped economy we currently have, but tax simplifications and reforms therein, a push for urban development, housing and MSME credit should be key priorities.

A significant driver of consumption growth has been the expansion of our IT industry, but with AI adoption slowing down recruitment, new policy initiatives are needed. An urban job guarantee scheme for infra maintenance, digitization and public services is an idea whose time has come.

Six, promote tech sovereignty to prevent potential tech weaponization by the US. We need investments in AI models, cloud infra, chips and cyber security. A second phase of the India digital stack must be looked at. A national cyber command for cyber defence could be set up.

Seven, make green advances. No resilience can be complete without an alignment of climate initiatives on green hydrogen, the EV ecosystem and a carbon market. Though solutions are known, India has performed poorly on air pollution; as Harvard professor Gita Gopinath pointed out, it has an impact on our GDP and public health.

A carbon market with a national carbon trading platform linked to the EU’s and Japan’s will go a long way in emerging as a trusted partner globally. Low-cost finance for green initiatives through a dedicated corporation could help replicate China’s success over the last decade in cleaning up pollution.

Eight, tackle distress on the ground. Rapid economic growth hides micro level hardships faced by many. Hence, measures aimed at job creation, reducing inequality, developing human resources and providing food and employment backstops must continue.

In a nutshell, the budget must move from India’s existing model of growth and welfare to one of growth security, targeted welfare and resilience. The budget document, therefore, must signal not just an emphasis on growth, but a well rounded initiative to build economic, energy, tech and fiscal resilience in a deeply uncertain world.

This is probably the toughest budget any finance minister has had to put together in the past 10 years. Done well, it could consolidate Sitharaman’s legacy. It’s not just about allocating money, but building economic sovereignty.

The author is a Sloan Fellow of the London Business School.