By G N Bajpai
In recent months, the slowdown of the Indian economy in the last quarter rattled policymakers and led to a quiet squabble among pundits. Many of the critics identified slowing consumption as the main culprit of slowing growth. The FY26 Union Budget and its drive and implications must be seen in this context. The central question facing policy makers then was this: How does the government ensure the goals of a vikisit Bharat amid a gloomy outlook, made worse by a changing global dynamic? On the domestic front, there seems to be a drift towards the twilight of slowdown. On the global front, the economy is reeling under the exceptionalism of US trade policies, the rising dollar, and geopolitical dubiety.
It can be fairly said that this was a particularly challenging budget to design. The finance minister has delivered the near impossible trinity of maintaining macroeconomic stability, supporting investments and finding a way to give consumption a super boost.
This year’s fiscal deficit is pegged at 4.8% of GDP, lower than outlined in the July budget and still lower at 4.5% for FY26. Credibility is anchored by religiously traversing the glide path and the reduction of debt to GDP ratio from 57.1% in 2024-25 to a targeted 50% in 2030, with a pronounced trimming by 1% in the FY26 itself. Gross borrowing is held down at Rs.14.83 trillion, just 5.6% increase over last year. Nominal GDP growth is pegged at 10.1% with a deflator of 4%, which inspires credibility to revenue and expenditure estimates and delivers a subtle message to RBI to undertake balance of heavy lifting.
Public investments are a story of a relentless journey rising from just 1.5% of GDP in FY19 to 3.2% in FY25. It has doubled in the last four years. Next year’s allocation, Rs.11.2 trillion, is 10.9% higher than last year’s revised estimates. The facilitation of private sector participation in infrastructure building will add to capital investments. All the relevant ministries are being commandeered to prepare a three-year pipeline of projects.
Consumption is sought to be boosted by a tax cut of 0.3% of GDP. Over Rs. one trillion reductions in Income Tax cumulatively are radiating the faces of over 20 million (immediate beneficiaries) taxpayers representing the middle class. Economists estimate that 80% of tax reductions are used for consumption and 20% for savings. This is the big boost to consumption to answer critics who have noted the consumption has suffered in the last year.
The budget proposals can be sized up in three frames: short, medium and long term. In the short term it provides a fillip to GDP growth, in the medium term it seeks to raise sustainability of high GDP growth and in the long term it facilitates harvesting prosperity. It covers almost all sectors of the economy-agriculture, manufacturing and services. It promotes the welfare of rural India and of urbanites alike and in that sense is inclusive.
Transformative reforms are proposed for six sectors- power, mining, urban development including water, financial sector, ease of doing business and living, and taxation. A sharp focus is proposed for tourism, including medical tourism with 50 identified destinations, the leather and textile industries and marine products. Along with agriculture, all these sectors will generate millions of employment opportunities.
Amongst the proposals, agriculture has been rightly accorded top priority with emphasis on growth, productivity and farmers’ income. National Missions of tur, urad and masoor for self-sufficiency, high yielding seeds for developing varied seeds of high yield and climate resistance and cotton production to quell stagnating productivity will provide a coordinated approach to these areas. Dhan Dhanya Krishi Yojana in hundred districts of low productivity will benefit 1.7 crore farmers with proposed integrated development of agriculture in those districts.
Under the National Manufacturing Mission, MSMEs will benefit immensely from increased credit guarantee cover for micro-entrepreneurs, loans to start-ups in select 27 areas at 1% guarantee fees, term loans up to Rs.20 crores, customised credit cards up to five lacs etc. are positives. MSMEs will also be helped with clean tech manufacturing. These will be supplemented by hubs for toy manufacturing, footwear manufacturing, etc. The National Export Mission will elevate exports, particularly from SMEs & MSMEs, the biggest employment creator.
Support for setting up Global Capability Centres in tier II and tier III towns will develop those cities, unfold employment opportunities for budding professionals nearer home, provide relevant skills, reduce pressure on metro cities and boost investments from overseas. Numerous measures including 100% FDI in Insurance are envisaged to attract a larger amount of FDI.
Health, education and housing too have been allocated adequate resources with clearly outlined action plans. Cancer centers will be set up in all districts in three years and 200 will come up in FY 26. Hospitals and their facilities will be enhanced. The cost of a number of medicines is being brought down by reducing customs duties on intermediate goods. Gig workers will be provided with health cover. Broadband connections will be installed in all schools and Bharat Bhasha Scheme will make available textbooks in regional languages for better learning. Seats in medical colleges and IITs are being increased substantially. Another 40,000 affordable houses will be completed in FY26.
The assistance for shipbuilding and 100 greenfield airports adding 120 new destinations under the UDAN scheme, resources and facilitation for nuclear energy etc. will all go to build futuristic infrastructure. Adequate funds have been allocated for innovation, digital transformation, AI development and digital ecosystem to keep India in step with the world. Geo Spatial Mission should help modernize land records and urban planning.
Setting up the committee to contract regulatory cholesterol (which describes a universe of 1,536 laws, 69,233 compliances and 6,618 filings that businesses face at an aggregate, according to one finding) is a significant step. It comes with easier certifications and licensing, decriminalisation of over 100 legal provisions, simplification of taxation, Jan Vishwas 2.0 and single portal for KYC including periodical updating etc. It adds to ease of doing business and living and trust building.
There are deficiencies and inadequacies in the budget. Some of the States’ wishes have remained unfulfilled but partnering can lead to double engine growth. When growth starts declining, economics prescribes the counter cyclical approach of more spending rather than fiscal consolidation. However, global uncertainties encourage reserving some gunpowder to fight unknowns. Within the given resources, an earnest attempt has been made to balance and optimise.
(The writer is former chairman SEBI & LIC, and author of the books ‘A Game Changer’s Memoir’ and ‘The Essential Book of Corporate Governance’) (Syndicate: The Billion Press) (e-mail: [email protected])