Sachchidanand Shukla: A well-formulated budget that pays India’s future due consideration

How does one describe this budget? It comes across as:

Contextual: The liberal order that powered growth for decades is under stress. Nations are erecting new walls and there is a clear move towards bipolarity that may not serve India’s economic interests, even as newer technologies are acquired and bigger dollops of capital are absorbed.

Amid all this, how can India achieve its goal of becoming a developed economy? The budget has provided the answer—via measures that boost atmanirbharta or self-reliance while maintaining strategic resilience in an uncertain world.

Credible with a focus on continuity: For 2026-27 (budget estimate), nominal GDP growth has been pegged at 10%, versus 8% in 2025-26 (as per the first advance estimate), mostly in line with expectations.

The government has also fulfilled its commitment made in 2021-22 to reduce its fiscal deficit to a level below 4.5% of GDP by 2025-26. In 2025-26 (revised estimate), the Centre achieved a fiscal deficit of 4.4%, the same as it had budgeted.

For 2026-27, the deficit is expected to further decline to 4.3% of GDP. Central government debt is slated to go down from 56.1% of GDP in 2025-26 (revised estimate) to 55.6% of GDP in 2026-27, in line with a debt consolidation path aimed at a debt-to-GDP level of about 50%, plus or minus 1%, by 2030-31 (the last year of the 16th Finance Commission cycle).

With the assumption of 10% nominal GDP growth and gross tax revenue growth projected at 11.2%, the budget’s numbers are credible. The budget also continues to lean towards a better mix of expenditure; spending quality is still improving, with capital expenditure growth higher than nominal GDP growth.

In contrast, revenue expenditure is budgeted to grow in single digits. Fiscal consolidation of 10 basis points to 4.3% of GDP from 4.4% in 2025-26 will not be a drag on GDP growth, unlike in 2025-26, when the fiscal compression was far sharper.

With a minor negative fiscal impulse, budgetary spending is likely to be non-inflationary. The revision of the Consumer Price Index basket and reduction of its share of food may impart a slight price push in 2026-27, but this is unlikely to pose any major challenge.

What does the budget have as a cue for the Reserve Bank of India and rupee? Continued fiscal consolidation (and debt reduction) is positive. However, higher-than-expected gross borrowings could exert upward pressure on the 10-year bond yield. The budget does not do anything in the near-term that is rupee-supportive. However, over the medium term, it could be positive for the currency, given the budget’s measures supporting investments in data centres, etc.

Capacity enhancing: The budget has prioritized infrastructure and a manufacturing strategy focused on scale, competitiveness and deeper integration with global value chains. It sustains India’s momentum on infrastructure development: ‘effective capex’ at ₹17.1 trillion is up 11.5% year-on-year.

The budget has announced new high-speed rail and dedicated freight corridors, a scheme for the enhancement of construction and infra-building equipment (such as tunnel boring machines) and a plan to make such equipment locally. This will help reduce India’s import dependence.

There are also moves to help India get beyond assembly and attain full-stack semiconductor capability through the India Semiconductor Mission 2.0, aimed at producing equipment and materials, developing full-stack Indian intellectual property and strengthening supply chains.

The budget also emphasizes long-term economic security with plans for dedicated rare-earth corridors, 20 new waterways and so on, apart from measures like import duty exemptions for nuclear projects till 2035.

Also, many procedures are being simplified. This includes simpler taxation for global capability centres through higher safe harbour limits and multiple steps for easier tax administration for individual taxpayers.

What could the budget have done better? Its customs rationalization could have been comprehensive (as with GST), especially since India has been signing big free trade agreements. Similarly, while subsidies remain low and manageable, the budget could have reviewed the entire subsidy regime (including for food and fertilizers).

The endurance of our ‘Goldilocks’ scenario of high GDP growth and low inflation depends on the government’s execution of all of the above. The fact that it has eschewed short-termism on fiscal expansion and focused on macro stability, sustained budget discipline and medium-term capacity enhancement will reaffirm the attractiveness of the India story.

These are the author’s personal views.

The author is group chief economist at Larsen & Toubro.