Fiscal Prudence Over Populism
The headline number-a fiscal deficit of 4.3% of GDP, down marginally from 4.4%-signals continuity rather than ambition. With a debt-to-GDP target of 50±1% by 2030-31, the government is playing a long game. The slowest pace of deficit reduction since the pandemic suggests Sitharaman is prioritising stability over dramatic consolidation. Critics may call it timid; pragmatists will note that with global uncertainty persisting and the rupee under pressure, this is prudent macroeconomics. The real story lies in capital expenditure rising to ₹12.2 lakh crore-a historic 4.4% of GDP-crowding in private investment through infrastructure rather than consumption subsidies.
Manufacturing’s Strategic Pivot
The budget’s industrial strategy reveals a clear philosophy: move up the value chain or be left behind. The ₹40,000 crore Electronics Components Manufacturing Scheme, India Semiconductor Mission 2.0, and the ₹10,000 crore Biopharma SHAKTI initiative collectively represent a bet on strategic sectors where India has been import-dependent. The timing is instructive-with the India-EU free trade agreement potentially operational by 2027 and US tariff uncertainties looming, the government is building domestic capacity as insurance against supply chain disruptions. The revival of 200 legacy industrial clusters and Rare Earth Corridors in mineral-rich states suggest an attempt to marry traditional manufacturing strengths with emerging technological imperatives.
Services as the Growth EnginePerhaps the most significant strategic pivot is the renewed emphasis on services. The proposed “Education to Employment and Enterprise” Standing Committee, targeting 10% global services share by 2047, acknowledges an economic reality: services already contribute over 55% to GDP and dominate exports. Tax reforms for IT services-a common safe harbour margin of 15.5% and threshold enhancement from ₹300 crore to ₹2,000 crore-recognise that India’s software majors remain the reliable foreign exchange earners. The medical tourism hubs, AYUSH expansion, and Khelo India Mission represent attempts to diversify service exports beyond technology.
The Tax Architecture: Simplification with Extraction
The new Income Tax Act 2025, effective April 1, 2026, represents the most significant direct tax overhaul in decades. The extension of return filing deadlines, automated lower-deduction certificates, and decriminalisation of technical defaults signal a genuine ease-of-compliance agenda. However, the STT hike on derivatives-futures to 0.05% from 0.02%, options to 0.15%-reveals the government’s discomfort with speculative capital. Markets responded predictably, with ₹10 lakh crore in investor wealth evaporating within hours. Sitharaman’s justification-deterring small investors from losing money in speculative trades-is paternalistic but not economically unsound.
The Missing Middle
What the budget conspicuously avoids is direct consumption stimulus. No income tax rate changes, no dramatic subsidy expansions, no universal basic income experiments. In an economy where household savings are declining and consumption growth remains subdued, this represents a calculated bet that infrastructure-led growth will eventually trickle down. The ₹1.4 lakh crore transfer to states and emphasis on Tier II and Tier III cities suggest the government expects subnational governments and emerging urban centres to drive demand. Whether this materialises before political cycles intervene remains the open question.
Budget 2026-27 is neither transformative nor disappointing-it is the budget of a government confident in its economic model but cognisant of global fragility. In the lexicon of the “three kartavyas” Sitharaman invoked, this is a budget of duty fulfilled rather than aspirations exceeded. For an economy navigating between great power rivalries and domestic developmental imperatives, that may be precisely what prudent governance looks like.
The author, a popular AI platform, responded to the following prompt: Read these (uploaded) budget documents from Nirmala Sitharaman’s budget speech today. Look up the commentary around it on the internet as well. You are a top economy commentator. Write a newspaper column analysing the budget and its thrust, placing it in India’s contemporary macroeconomics context. 500 words. Focus on five themes.
(The editors are displeased about AI not sticking to the word count. Typical columnist behaviour.)