Budget 2026: India has a habit of treating the Union Budget as a political instrument rather than an economic one. In election years, the impulse to soothe often overrides the need to accelerate. This year, that luxury does not exist. Global growth is slowing, capital is cautious, and geopolitical risk is elevated. At home, India’s growth story is incomplete. National Statistical Office data show headline GDP growth averaging about 7% in recent years, but per capita income growth remains modest and job creation continues to lag output.
Budget 2026 must therefore resist comfort and opt for acceleration. It cannot rely on redistribution to stabilise sentiment. It must prioritise productivity-led growth.
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Fiscal consolidation is pro-growth, not anti-poor
The Budget’s first test is fiscal credibility. The Reserve Bank of India has repeatedly underlined how high public debt constrains monetary policy and crowds out private investment. General government debt remains close to 80% of GDP. Fiscal drift is not an option.
One of the government’s strongest macro signals since the pandemic has been its commitment to consolidation while protecting capital expenditure. That stance must continue. Growth is not a by-product of stability; it is a precondition for it. IMF assessments consistently show that countries with credible fiscal frameworks attract steadier capital flows and face lower borrowing costs. Even a 50-basis-point compression in sovereign yields translates into durable fiscal savings that can be redeployed productively.
This is why the Budget must avoid eye-catching tax cuts or unfunded welfare expansions. That does not imply abandoning social spending. It implies sharpening it. The Economic Survey has documented how technology-led delivery has reduced leakages in subsidies. Rationalising non-merit subsidies and improving targeting can create fiscal space without hurting the vulnerable. Growth-oriented Budgets are not austere; they are selective. Sustainable jobs do more for poverty reduction than fiscally fragile transfers.
Capital expenditure: Smarter, not just larger
Public capital expenditure has been the most effective macro lever in recent years. Since FY20, central government capex has risen sharply as a counter-cyclical anchor when private investment hesitated. RBI estimates place the long-term output multiplier of capital spending between 2 and 2.5.
The next phase must focus less on volume and more on quality. Transport investments have improved logistics efficiency. The next productivity frontier lies in energy transition and urban systems. World Bank analysis shows that climate-resilient infrastructure can prevent significant annual GDP losses in vulnerable economies. Grid modernisation, renewable integration, water management, and urban mobility directly raise long-term growth capacity.
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Execution discipline matters as much as allocation. Delays dilute multipliers. Linking central transfers more tightly to project completion, maintenance, and outcomes would improve returns on public investment. Capex must also crowd in private capital. Private investment as a share of GDP remains below its 2012 peak. Predictable public-private partnership frameworks, adequate viability gap funding, and faster dispute resolution are essential to revive investment appetite. Public spending should accelerate private investment, not substitute for it.
Employment must shape the growth strategy
No growth strategy is credible without jobs. India’s demographic window is narrowing, not widening. Periodic Labour Force Survey data show rising labour force participation, but the quality of jobs remains uneven.
A growth-oriented Budget must therefore prioritise sectors with high employment elasticity rather than diffuse incentives. Manufacturing incentives have expanded capacity, but many are capital-intensive. The next step is to scale labour-absorbing sectors: textiles, food processing, tourism, electronics assembly, logistics, and care services. These sectors integrate MSMEs and absorb semi-skilled labour at scale.
International experience is unambiguous. East Asian economies staged their transitions through labour-intensive manufacturing before upgrading. Skills policy is central to this shift. Despite large allocations, outcomes remain weak. The Economic Survey points to persistent skill mismatches. Budgetary spending must be tied to placements, apprenticeships, and firm-level partnerships. Countries that align skilling incentives with employer demand achieve far higher employment conversion.
Even basic interventions matter. World Bank evidence suggests that a five-percentage-point rise in female labour force participation can significantly lift long-term GDP. Tax policy should reinforce this growth logic. Stability matters more than generosity. Frequent tinkering raises uncertainty and compliance costs. Broadening the tax base through data analytics, formalisation incentives, and enforcement strengthens revenues without distorting investment decisions.
Credit transmission also needs attention. Stronger bank balance sheets have supported credit growth, but access for MSMEs remains uneven. Credit guarantees, deeper bond markets, and regulatory coherence can lower the cost of capital for productive firms.
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Choosing seriousness over symbolism
The Union Budget cannot resolve every structural constraint, but it can set the direction. A growth-oriented Budget chooses discipline over drift, multipliers over symbolism, and productivity over populism. Policy consistency is India’s strongest comparative advantage in an uncertain global environment.
If Budget 2026 strengthens fiscal credibility, prioritises high-quality investment, and aligns skills with demand, growth will compound. If it yields to comfort, momentum will stall. What the economy requires is not generosity, but seriousness.
Naman is a doctoral researcher at Bennett University, Greater Noida. Aneesh teaches Economics at Christ University, Delhi NCR Campus.