India’s macro backdrop today looks unusually reassuring. Quarterly real growth has been firm, inflation is low, banks are reporting strong profits with low NPAs, and corporate balance sheets look healthier after years of deleveraging. That surface calm, however, is precisely why the Union Budget deserved to be read more as a stress test than as a celebration.
Why the calm may be contingent
Some of the “Goldilocks” shine is contingent. Growth momentum has leaned heavily on the Union government’s public capex push, which cannot remain the default engine indefinitely without testing debt dynamics. Meanwhile, low inflation has been helped by food-price deflation, which is not permanent. Pre-budget caution signals showed that the output of eight core industries grew only 2.6% year-on-year in April–December FY26.
Finance Minister Nirmala Sitharaman presented her record ninth consecutive budget with the theme of cautious pragmatism — trying to keep the fiscal glidepath intact while nudging the economy towards capability-building and growth enhancement.
Fiscal numbers and credibility
Total spending is budgeted to rise to Rs 53.5 trillion, up 7.7% over revised estimates, while revenue (excluding borrowings) is projected at Rs 36.5 trillion, up 7.2%. The fiscal deficit is budgeted at 4.3% of GDP, consistent with the promise of staying below 4.5%. This restraint matters for credibility — especially in a world where external financing conditions can tighten abruptly and where sovereign perception can affect the cost of foreign capital.
Borrowing pressure and bond markets
Between the Union government’s gross borrowing budgeted at Rs 17.2 trillion and an additional Rs 12.6 trillion of borrowing by states, the bond market faces a flood of issuance. Unsurprisingly, long bond interest rates are stuck at 7% despite substantial easing by the Reserve Bank of India. That becomes a deterrent to private capex.
Concerns over revenue buoyancy
There is also the issue of tepid revenue buoyancy. The Centre’s gross tax revenues grew only 3.3% in April–November FY26, far below the 10.8% growth assumed for the full year. If nominal GDP this year is only 8%, or if consumption stays weak, then the best-laid fiscal arithmetic becomes harder to sustain without cutting the very capex that is propping up growth. The slight tweak to the securities transaction tax was as much for revenue mobilisation as for curbing excessive speculative activity in the derivatives market. Markets convulsed, and hopefully will recover soon.
Capex bias retained
On the spending side, the budget keeps the capex bias. Capital spending on infrastructure is budgeted to rise by 9% and reach Rs 12.2 trillion. As long as it remains high-quality capex and does not crowd out private investment, it is acceptable.
Services export ambition
The budget sets an ambitious target of achieving a 10% global share in services — beyond software, extending to content creation, design, health, and tourism, including medical tourism. India has a comparative advantage in increasingly tradable services, but this will require a productivity leap driven by skills.
Education-to-employment pipeline
Hence, the budget points to a pipeline from education to employment and enterprise via a proposed standing committee. It also signals a cluster-based industrial approach — linking training institutes to sectoral clusters in textiles and leather and reviving over 200 legacy industrial clusters. This is how employment intensity is built: by improving supplier ecosystems, logistics, standards and skill pools.
Boost for MSMEs
The budget’s MSME focus is welcome. Payment delays and working-capital constraints are the silent killers of small firms. Measures such as strengthening bill discounting via TReDS participation are exactly the kind of “plumbing reforms” that raise survival rates and formalisation.
Private investment still missing
If the Centre’s capex push is the visible engine of growth, the private investment response remains the missing cylinder. Here, the budget missed a simple but effective reform: fixing GST input tax credits, especially for capital goods. Input tax credits on machinery, plant, equipment and construction inputs get trapped for years, discouraging capacity expansion. Firms accumulate credits they cannot use. Full tax credit is denied because capital goods enjoy income-tax depreciation. The clean solution is to allow full tax credit on capital goods under GST while disallowing depreciation on the GST-credited portion. This was a missed reform with high impact and low political cost.
Distributional questions remain
Could the budget have been more redistributive? The Finance Minister must acknowledge an uncomfortable reality: headline growth and macro stability can coexist with widening inequality, wealth concentration and a sense of stagnant living standards for large sections, especially when job creation is lagging.
The budget language is heavy on “capability” and “Viksit Bharat”, but lighter on distribution — wage growth, quality of employment and the channels through which growth becomes broad-based consumption. The employment paradox remains stubborn: too many workers still depend on agriculture despite its much smaller share in output, a structural mismatch linked to wage stagnation and weak mass consumption. If this is not confronted more directly, the political economy risk is predictable — macro narratives will be distrusted, even when technically correct.
Need to deepen domestic savings
Relatedly, household financial savings are barely about 30% of total savings. Deepening long-term domestic capital — pensions, insurance, bond-market depth, inflation-protected savings, dispute resolution and trust in financial products — is necessary. The Finance Minister mentioned that a high-level committee will look at comprehensive financial sector reforms.
A cautious but sensible budget
Overall, this is a sensible budget precisely because it refuses to be euphoric about a Goldilocks moment. It stays conservative on fiscal maths, keeps capex going, and tries to orient policy towards skills and service-export dominance. But if India’s growth model is to become less state-driven and more private-investment-led, the next step cannot be another round of headline schemes. It must be the unglamorous reforms that unclog investment and broaden participation.
While building capabilities for future growth through skilling and cluster-based approaches, it is equally important to ensure that the gains of growth are spread more equitably. Capability-building should also substantially raise public spending on healthcare, education and research — something that will happen only when growth pays handsome dividends to the treasury.
Dr Ajit Ranade is a noted Pune-based economist. Syndicate: The Billion Press (email: editor@thebillionpress.org)
