Vishal Sharma
The Union budget 2026 is Finance Minister, Nirmala Sitaraman’s ninth straight budget. It was expected that given the stalled trade deal with the US and high tariffs imposed by the US, the budget would be reform light and focus for the most part on consolidation. However, in the typically Sitaraman style, she has smartly chosen to throw reforms, growth and fiscal consolidation- all together- in the mix. The budget marks a departure from the pervious year when it got loud cheers from the middle class on account of tax breaks. This year it has sought to focus on production part of the economy- incentivising manufacturing through exemption of custom duties on imports of electronic components, earmarking of funds for new age sectors, energising MSMEs, new critical minerals corridors, staying the course on infra development and easing the compliance burden for the businesses. The budget is guided by the mantra of self reliance that this govt holds so dear. It is not populist in the sense that it expands subsidies or offers tax breaks. But it is pragmatic.
Fiscal prudence has not been jettisoned given that higher debt gdp ratio and fiscal deficit would have raised the cost of borrowings. Fiscal deficit for BE 2026-27 is projected to come down to 4.3% from 4.4 % for the current year. Contrast this also with FD of 6.5% in 2022-23. Also, debt to gdp ratio is also projected to come down to 55.6 in 2026-27 from 56.1 in the last year.
Public capex on the other hand is on the rise and has increased manifold from Rs2 lakh crore in FY14-15 to an allocation of Rs 11.2 lakh crore in BE 2025-26. More than 10 lakh cr were spent under capex in the current year. In FY2026-27, it is pegged at Rs 12.2 lakh crore, which marks 8.9% increase over the current fiscal.
When spends rise, it is difficult to control deficits and ensure debt sustainability. But it appears that this difficult balance has been struck just fine. This will help improve investors’ confidence in the economy and come in handy for rating assessments.
As was expected after Op Sindoor, Ministry of Defence has been allocated an all-time high allocation of Rs 7.85 lakh crore in 2026-27- 15% rise over BEs of FY 2025-26. A record sum of Rs 2.19 lakh crore has been allocated under Capital Head; it’s a quantum leap of 24% in the Capital Acquisition budget.
Disinvestment target of Rs 80000 has been set under miscellaneous capita receipts (MCR) for 2026-27 up from Rs 34000 in REs for this year. In 2025-26, the govt had budgeted Rs 45000 under MCR, but as collections lagged, REs were revised down to Rs 34000. Actual receipts in 2024-25 were even lower at Rs 20214 cr. Given the historical trends, the projections look far too rosy and may have to be rolled back.
As regards new initiatives, Rs 10000 cr under SME growth fund, Rs 40,000 cr for electronics manufacturing scheme and Rs 10000 cr for container manufacturing scheme will provide much needed impetus to the above sectors. MSMEs provide maximum employment in the country. Therefore, they can’t be ignored; and hence additional Rs 2000 cr to self reliant India fund to ensure access to risk capital will render resilience to MSMEs in the current climate of tariff induced uncertainty.
The signing of Indo-EU deal recently is going to provide textile and apparel manufacturers in this country a great opportunity to tap EU markets as the EU lowers tariffs on them at par with Bangladesh and Pakistan. Injection of new dynamism in the sector was necessary and this budget has done that through a range of schemes like national fibre scheme, textile expansion and employment scheme, mega textile parks and Mahatma Gandhi Gram Swaraj initiative.
The rare earth export curbs imposed by China had threatened to hit auto and mobile industry in India until a measure of détente was finally achieved with China reportedly following assurance of provision of end user certification by New Delhi. However, weaponisation of interdependencies by China has left no one in doubt that dependence on another nation beyond a point is suicidal. FM’s announcement to set up dedicated rare earth corridors in states like Odisha, Kerala, AP and TN to promote mining and processing of rare earths will help India carve out an independent path in this sector. Although efforts are already ongoing in this direction, a dedicated budget allocation will help institutionalise the country’s approach to the sector.
Since there is a thrust only on high value agriculture like coconut, sandalwood, cocoa and cashew in the budget, there is a view that this sector has not received the attention it deserves. Govt is wary of putting large moneys into traditional agri sector given the existing productive and marketing inefficiencies unless structural agri reforms are first done. Its experience with farm laws appears to have informed its approach in the sector.
To boost manufacturing it was necessary to exempt custom duty on import of components that go into a raft of finished products from electronic items to aircrafts etc. In that direction, exemption of basic custom duty on import of components for processing of critical minerals, aircrafts, microwave oven etc is a right step, but more products should have been allowed this benefit.
It has long been thought that rich municipal bodies like BMC, Pimpri- ChinchwadPimpri etc. should start raising finance through municipal bonds for provision of municipal services. They are rich corporations and can service debts without being assisted by the govt. To this end, Rs 100 cr incentive for a single bond issuance of more than Rs 1000 cr to encourage issuance of municipal bonds by large cities is expected to change revenue raising pattern of the big cities’ corporations. Corporate bond market in India is still in infancy. Thus, FM should have spelled out explicitly what she wants to do beyond improving market making mechanisms. May be the connected Ministry will follow up on the FM’s announcement on corporate bond markets. Continued thrust on infrastructure is the way to go and towards that end, development of seven high speed rail corridors between important cities in southern, central, western and eastern India will bring about ease of living much in the same way the development of city economic regions through an allocation of Rs 5000 cr over five years per city economic regions is expected to improve our burgeoning economic centres. Industrialisation has long suffered from logistical inefficiencies in our hinterland due to massive gaps in transport infra. A new dedicated freight corridor between Dakuni in the east to Surat in the west is, thus, expected to address these very inefficiencies in the country.
By and large the budget ticks all the boxes of fiscal prudence and the nation’s quest for growth underpinned on reforms with a long range vision for Viksit Bharat in 2047 at its heart. But Indian tier 1 and 2 cities are crying for decongestion and more amenities for ease of living. Smart city scheme, therefore, needs to be relooked and more resource allocation made for aligning the civic infra in the cities with the modern day requirements. It is hoped that FC recommendations would have looked at that. AI, quantum computing, machine learning etc. does not appear to have been dealt with in greater detail; they are the new age technologies and multi- year investment plans in these sectors should have been spelled out along with a clear delineation of fiscal responsibilities of the free enterprise. In this age of deep tech, India can’t be seen to be taking baby steps in the sector which will change the current century beyond recognition.
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