Borrowings hit market
By Shivaji Sarkar
Finance Minister Nirmala Sitharaman’s 86-minute Budget speech for 2026–27 tried to project reform and restraint. The markets saw something else.
Within hours, Dalal Street delivered its verdict. The Sensex and Nifty slid after the government raised the Securities Transaction Tax (STT) on derivatives, chilling trading activity and offering little to attract foreign capital. Futures tax jumps to 0.05per cent, options to 0.15per cent—a move meant to curb speculation but one that spooked sentiment.
The stock market, BSE and NIFTY, is shaken. Indian markets slumped after the Union Budget raised the Securities Transaction Tax (STT) on derivatives, dampening trading sentiment and offering little to attract foreign capital. The Nifty and the Sensex fell sharply.
The disappointment ran deeper than the STT tweak. A fiscal deficit of Rs 17 lakh crore and planned market borrowings of nearly Rs 11 lakh crore signal heavier government demand for funds and costlier credit for companies. With few fresh growth triggers and only modest capex impulses, investors found little to cheer during the rare weekend trading session.
The fine print reveals a cautious, defensive budget with a clear tilt toward urban India and manufacturing. It seeks stability over stimulus at a time when the global backdrop is anything but stable—geopolitical tensions, tariff threats from a possible Trump return, weakening multilateral trade, and rapid technological disruption. Manufacturing is repackaged to fit the European Union FTA playbook, but broader demand-side revival is missing.
The budget is also packed for poll-bound North-East with Buddhist circuit, fisheries, coconut, sandalwood for Kerala, Tamil Nadu and West Bengal.
Presenting her record ninth straight budget, Sitharaman listed interventions across everything from walnuts to semiconductors, signalling a state that still wants a hand on the controls. Bottom of Form
From Doer to Driver
What has changed is the state’s role. The government now prefers to position itself as a driver rather than a doer. It sets direction, signals priorities and deploys public capital, but expects the private sector to deliver the heavy lifting. Investment is meant to follow government cues, not government ownership.
Public spending remains intentionally strong—but no longer dominant—suggesting a neo-Nehruvian framework: strategic steering without outright control. In today’s world it is no longer companies competing with each other but states competing for capital, technology and supply chains. India is simply adapting to that reality.
In this framework, sectors such as healthcare technology, electronics and artificial intelligence are treated the way steel and heavy industry were in the 1950s—anchor industries meant to spawn ecosystems of suppliers, start-ups and skilled jobs. The state sees itself as the incubator.
The ambition is understandable. The execution remains uncertain.
The Missing Rural Note
What stood out even more was what the speech barely emphasised. The familiar paeans to farmers and rural India—once staples of every Budget—were conspicuously muted. Instead, the thrust is toward industrialising semi-urban clusters, upgrading logistics and nudging agriculture toward higher-value niches such as seeds, herbs, fisheries and food processing.
It took 43 minutes into the speech for the finance minister to mention farmers’ incomes, accompanied by a modest plan to replenish 500 reservoirs to support fisheries. The timing felt symbolic. Agriculture appeared less like the centrepiece, as in some of the previous budgets, and more like an afterthought, a significant shift.
For decades, budgets were written with the village as the political and economic fulcrum. This one reads as though the future lies squarely in cities, factories and technology parks.
There is logic to that shift. Urbanisation drives productivity. Manufacturing creates scalable jobs. Services and technology attract global capital. No country has reached middle-income prosperity without this transition. Apart as per the EU Free Trade Agreement it needs to reorient the industry to the expected new demand from Europe.
It’s slightly myopic. Decades of bonhomie with the US could not rev up the production. The US was least into the import list. Now with Europe seeking an Indian market expecting manufacturing to move up is a bit of optimism. Europe wants to swamp the Indian consumer market, including the automobile sector.
Recent years have delivered impressive tax buoyancy, especially from GST and income tax compliance. But the quality of revenue matters more than the quantity.
Net household financial savings have fallen to nearly 5 per cent of GDP, among the lowest in decades, even as household debt rises. This suggests that consumption—and therefore tax collection—is increasingly financed by borrowing and dissaving rather than rising incomes. That is not sustainable.
An economy cannot indefinitely extract revenue from households whose buffers are thinning. Yet instead of broadening the tax base through formal employment and income growth, the state often resorts to easier fixes—higher sin taxes, user charges, fee hikes and transaction levies. Besides the health care and education get the least of investments.
Nearly 65 per cent of India’s population still lives in rural areas. Farm incomes remain volatile. Consumption in the hinterland anchors demand for everything from two-wheelers to FMCG goods. Neglecting rural resilience in favour of urban ambition could widen inequality and dampen overall growth. Politically, it is a gamble. Economically, it could prove shortsighted.
A Balancing Act
The Budget, then, reflects a government attempting a delicate balancing act: fiscally conservative yet interventionist, pro-market yet state-directed, urban-focused yet rhetorically inclusive. It seeks to reassure investors with stability while quietly expanding the state’s strategic footprint. It champions private enterprise while prescribing where that enterprise should go.
This hybrid model may well define India’s next phase—neither laissez-faire nor statist, but something in between. Whether it delivers the promised growth or simply recreates old inefficiencies in new packaging will depend less on the length of speeches and more on execution.
For now, the signal is clear: India’s economic centre of gravity is shifting—from farms to factories, from villages to value chains, from welfare to industrial strategy. The big question is whether the country can make that leap without leaving too many behind. The question before policymakers is blunt: can government spending alone sustain a $4-trillion economy’s ambitions?
Sustained growth comes when households save, firms invest, exports expand and jobs multiply—when private confidence, not public expenditure, becomes the engine. Until then, every Budget will look stable on the surface and strained underneath. India has to create a strong public sector role supported by a buoyant private sector
Capex may be up. But without deeper reforms, sentiment—and growth—will remain down and as the IMF says its growth figures may be less credible.—INFA
(Copyright, India News & Feature Alliance)
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