In her ninth full budget presentation, Union Finance Minister Nirmala Sitharaman has charted a course that balances fiscal discipline with strategic investments, yet critics argue it sidesteps crucial domestic reforms needed to bolster India's economic resilience. The budget, delivered against a backdrop of global uncertainties, showcases a commitment to fiscal consolidation but leaves key issues like privatisation and subsidy rationalisation unaddressed, raising questions about the government's reform agenda.
Fiscal Consolidation and Capital Expenditure: A Dual Focus
The budget highlights a significant achievement in fiscal management, with Sitharaman meeting the 4.4% of GDP target for 2025-26 despite a substantial Rs 1.63 lakh crore shortfall in tax collections. For the upcoming fiscal year, the fiscal deficit is projected at 4.3%, alongside a reduction in the Centre's debt stock from 56.1% to 55.6% of GDP. This marks a notable recovery from the Covid-19 peak of 9.2% deficit and 61.4% debt ratios in 2020-21, underscoring a steadfast dedication to fiscal prudence.
Simultaneously, capital expenditure has seen a remarkable surge, more than doubling from Rs 4.26 lakh crore in 2020-21 to Rs 10.96 lakh crore in 2025-26, with a further allocation of Rs 12.21 lakh crore for 2026-27. This shift towards growth-stimulating investments reflects an improved quality in government spending, aimed at fostering long-term economic development.
Strategic Initiatives and Tax Reforms
The budget places a strong emphasis on scaling up domestic manufacturing in critical sectors such as biologics, semiconductors, and rare earth magnets, where China currently dominates. This move is designed to enhance India's self-reliance and global competitiveness in frontier industries.
On the taxation front, welcome measures include replacing prosecutions with penalties for minor offences and liberalising transfer pricing rules for IT services companies, raising the threshold from Rs 300 crore to Rs 2,000 crore. These changes aim to reduce litigation and streamline processes, fostering a more business-friendly environment.
Missed Opportunities and Market Concerns
Despite these positives, the budget has drawn criticism for its handling of investor sentiment. The decision to raise the securities transaction tax on futures and options, coupled with a lack of stimulus measures like capital gains cuts, led to a sharp market decline, with the BSE Sensex dropping 1,547 points. This comes at a time when India's equity markets are underperforming compared to emerging market peers, and foreign investors are showing reluctance to commit capital.
The Economic Survey had highlighted the need for aggressive disinvestment and subsidy rationalisation, yet the budget offers little on these fronts. Subsidy outgoes, particularly for food and fertilisers, remain high, with combined expenditures at Rs 4.15 lakh crore in 2025-26 and projected at Rs 3.98 lakh crore for 2026-27, without concrete steps to curb consumption or procurement inefficiencies.
Governance and Future Prospects
The Modi government has a history of announcing major reforms outside the budget, such as corporate tax cuts and GST simplifications, which offers hope for future action. Expectations are high for the Centre to implement Finance Commission recommendations on incentivising state-level power sector and subsidy reforms.
However, the budget's role in signalling priorities is crucial. For instance, the absence of dedicated funds for tackling pollution, a pressing issue affecting both citizens and India's global image, represents a missed opportunity to address broader societal challenges.
In conclusion, while the budget advances fiscal consolidation and strategic investments, it falls short in replicating the conviction seen in international trade agreements for domestic governance reforms. As political space for tough decisions narrows, the need for bold action on privatisation and subsidies becomes increasingly urgent to sustain economic growth and investor confidence.
