Budget 2026: The Union Budget, Finance Minister Nirmala Sitharaman’s ninth, drew a muted public response. There was neither euphoria nor outrage. Markets reacted, but the larger public conversation stayed thin. The policy conversation did not. The budget was read as a set of calibrated interventions, not a grand reset.
Last year’s budget leaned on consumption. Tax relief was used as demand support, a wager that higher disposable incomes would keep growth steady. The Economic Survey of India later described consumption as strengthened and contributing about 61% of GDP.
This year’s budget shifts the centre of gravity. It is framed amid global uncertainty, a weakening rupee, and stress in exports and manufacturing. The stated intent is to harden the supply side, deepen production capacity, and protect tradable sectors.
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Capital expenditure and the supply-side signal
A supply-side budget is ultimately tested in the capex line. Capital expenditure is budgeted at Rs 12.21 lakh crore in 2026-27, up 11.5% over the revised estimate for 2025-26. Capital outlay rises more modestly, while loans and advances rise sharply, which matters for how much “build” is direct public investment versus financing support.
The budget also leans on states for execution. Transfers to states rise, and the Centre budgets Rs 1.85 lakh crore as special interest-free loans for states’ capital expenditure. That reinforces the supply-side push, but it also makes delivery contingent on state capacity and project readiness.
The first policy plank is indigenisation of backward linkages in sectors that are export-facing but import-dependent. The budget signals targeted support across textiles, pharma inputs, electronics and semiconductors, and critical minerals and battery materials. The economic logic is not only scale, but resilience, especially where supply shocks have stopped being “one-off” events.
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Exports, trade facilitation, and compliance costs
Export competitiveness is not only a function of incentives. It is also a function of friction. On that front, the budget’s trade-facilitation package is a more concrete lever: electronic sealing of export cargo, trusted supply-chain recognition, automated customs processes, expanded non-intrusive scanning, longer validity for advance rulings, and easier duty-deferment for Authorised Economic Operators. It also removes value caps for courier exports, which directly matters for smaller exporters and e-commerce shipments.
This is a pragmatic way to address exports without inflating the subsidy bill. But its impact will depend on whether the implementation actually reduces dwell time and discretion at the field level, not merely adds a new layer of compliance technology.
Employment generation via labour-intensive sectors
The second plank is employment. The budget signals support for labour-intensive sectors and identifies tourism and allied services as job multipliers. It also tries to address the skills bottleneck through a spread of modular interventions: AVGC labs across educational institutions, integrated university townships, a new National Institute of Design, short-term programmes developed by statutory bodies such as ICAI and ICSI, and sector-specific training such as immersive tourism training in collaboration with IIMs.
The weak link is not the menu of programmes. It is absorption. Without local employer networks and placement pipelines, skilling risks becoming an activity, not an outcome. That is where state governments, local institutions, and industry associations do the heavy lifting. The budget’s reliance on states is implicit here too.
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MSME liquidity, delayed payments, and credit transmission
A jobs story in India is incomplete without MSMEs. The budget’s most relevant intervention is not another scheme, but an attempt to unclog working capital. It proposes wider and more binding use of the Trade Receivables Discounting System (TReDS), including mandated participation by central public sector enterprises, and associated credit support to make invoice discounting easier. The intent is to reduce the routine 60–90 day payment cycle that turns MSMEs into involuntary financiers of larger buyers.
This matters because it is a transmission mechanism. If MSME liquidity improves, the employment plank stops being rhetorical. If it does not, manufacturing and services “push” will still run into the same balance-sheet constraints, only in a different vocabulary.
Fiscal discipline as the binding constraint
The budget’s coherence rests on its fiscal anchor. The fiscal deficit is targeted at 4.3% of GDP for 2026-27, lower than the revised estimate of 4.4% for 2025-26. In a supply-side budget, this restraint matters because it limits the temptation to buy growth through open-ended support. It also raises the bar on implementation, since the budget cannot rely on brute fiscal expansion to mask weak execution.
The principal misstep was its market signalling. At a time when markets were already uneasy, the budget raised the Securities Transaction Tax on equity derivatives. Reuters reported the STT on futures rising from 0.02% to 0.05% and on options from 0.1% to 0.15%, followed by a sharp negative reaction in benchmark indices on the day.
A government can argue that the derivatives market needed cooling. That may be true. But the cost of a poorly timed signal is real in a budget that otherwise leans on private investment and confidence.
There is also a quieter omission. The budget does not signal a discernible jump in strategic and defence spending despite an unsettled global security environment. That gap does not overturn the budget’s economic direction, but it does narrow the claim to “resilience”.
Stripped of flourish, this is a budget that privileges capacity-building over short-term stimulus, tries to improve export competitiveness by cutting friction, and addresses employment through a mix of sector focus and skilling. Its credibility rests on fiscal restraint, and its success rests on state capacity and financial transmission, especially for MSMEs. The weaknesses are clear, but the underlying direction is coherent.
Dr Sarika Rachuri teaches at ICFAI Business School, Mumbai.