Budget 2026-27: Continuity over colour in an age of constraint
Indian Budgets are often remembered for symbols. One of the most cited examples is N.D. Tiwari’s “sindoor Budget” of the 1980s, recalled less for its fiscal impact than for a token excise duty on vermilion that became a political anecdote. Over time, this tendency toward theatrical announcements has come to define Budget-day expectations.
The Union Budget by Nirmala Sitharaman deliberately resists that tradition. This year was no exception. It is a Budget of continuity, arithmetic and incremental reform. It is shaped by the recognition that India is entering a decade defined not by benign global conditions, but by volatility, tighter capital, and sharper geopolitical constraints.
The clearest signal lies in the fiscal numbers. The Centre’s fiscal deficit is budgeted at 4.3 per cent of GDP in FY27, marginally lower than the 4.4 per cent estimated for FY26. This completes a consolidation path that has reduced the deficit from 6.9 per cent of GDP in FY22 to below the government’s medium-term threshold of 4.5 per cent.
Public debt is projected to decline from 56.1 per cent of GDP in FY26 to 55.6 per cent in FY27, with an explicit commitment to converge to 50±1 per cent by FY31. Interest payments already absorb roughly 40 per cent of the Centre’s net tax revenues, leaving limited room for discretionary expansion. Against this backdrop, fiscal discipline is not ideological conservatism; it is macroeconomic necessity.
Net market borrowings are estimated at ₹11.7 lakh crore, with gross borrowings of ₹17.2 lakh crore, broadly in line with the previous year. The Budget thus avoids levering growth through higher sovereign borrowing at a time when global capital markets are increasingly selective and risk premia are sensitive to fiscal credibility. However, one should acknowledge the market was expecting lesser borrowings. But the borrowings might go down in the revised estimates.
Public capital expenditure rises to ₹12.2 lakh crore, up from ₹11.2 lakh crore in FY26 and nearly six times the ₹2 lakh crore spent in FY15. However, the macro stance is important. With the fiscal deficit narrowing, government spending is no longer adding net demand to the economy. The government is now expecting the private sector to do more on capital expenditure front.
Capex is therefore framed as a supply-side intervention, i.e., improving logistics, reducing transaction costs, and enabling private investment. Dedicated freight corridors, inland waterways, port connectivity, REIT-led asset monetisation and infrastructure risk guarantees are designed to improve the economy’s balance sheet rather than inflate short-term consumption.
The Budget implicitly recognises that growth cannot be sustained by fiscal expansion when nominal GDP growth is moderating and interest costs remain high.
The Budget’s growth logic rests on three interconnected drivers: urbanisation, housing-linked infrastructure, and energy availability. Proposals for City Economic Regions (CERs), backed by ₹5,000 crore per region over five years, signal a shift toward agglomeration-led productivity. Tier-II and Tier-III cities are explicitly positioned as growth centres rather than residual beneficiaries.
Similarly, the emphasis on power generation, transmission, storage, and critical minerals reflects the reality that electricity demand is rising faster than GDP. Power-sector reforms, restructuring of public sector NBFCs linked to energy finance, and customs exemptions for nuclear and renewable inputs are aimed at preventing energy from becoming a binding constraint on industrial and urban expansion.
Real estate-linked measures indicate an understanding that housing cycles and urban construction remain central to private investment momentum.
In a world of fragmented trade and strategic tariffs, the Budget avoids both protectionist escalation and rhetorical liberalisation. Customs reforms focus on rate simplification, removal of long-standing exemptions, correction of duty inversions, and reduction of input costs.
Basic customs duty exemptions are extended for capital goods used in lithium-ion batteries, energy storage systems, nuclear power projects and critical minerals. Export-oriented sectors such as textiles, leather and seafood benefit from higher duty-free input limits and longer export timelines. The rationalisation of Quality Control Orders on intermediates quietly lowers compliance costs for exporters.
The trade strategy seeks to preserve export competitiveness and supply-chain reliability without exposing domestic producers to abrupt shocks or inviting retaliation.
On finance, the Budget prioritises market infrastructure over fiscal incentives. Proposals for market-making in corporate bonds, total return swaps on bond indices, and incentives for large municipal bond issuances aim to deepen domestic capital markets and reduce reliance on external funding.
Foreign investment rules are simplified through a review of non-debt instruments under FEMA, while customs and tax administration move toward trust-based, rule-driven systems. The introduction of automated safe harbours, integrated assessment and penalty proceedings, and reduced criminalisation under the Income Tax Act, 2025 signal a shift from discretionary enforcement to procedural certainty.
These measures lower compliance costs, reduce litigation risk and improve predictability, factors that matter disproportionately when global capital becomes cautious.
What the Budget does not attempt is equally instructive. There is no effort to rationalise food subsidies, which continue to cover nearly three-quarters of the population, despite declining poverty and a falling share of cereals in consumption. Politically sensitive transfers are preserved.
Budget 2026–27 is shaped by constraint rather than optimism. It assumes that global volatility is persistent, capital is selective, and fiscal space is finite.
Growth is to be sustained through productivity, institutional reform and credibility, not through fiscal exuberance or symbolic announcements. There will be no “sindoor moment” from this Budget. That is its defining feature. In a world where economic shocks are more frequent and margins for error narrower, continuity itself becomes a reform.
Aditya Sinha writes on macroeconomics and geopolitics
