A Chain-Linked Budget

The Union Budget 2026-27, marking the Finance Minister’s ninth consecutive presentation, stands as a testament to continuity, credibility, and institutional stability. In an international economic landscape characterised by volatility and heightened uncertainty, such consistency is not merely reassuring but indispensable. The Budget functions as a crucial chain link, firmly anchored in the policy architecture of recent years, yet consciously forward-looking in its ambition to accelerate India’s medium-term growth trajectory.

From a fiscal standpoint, the Finance Minister has matched intent with execution. The Budget embarks on the renewed fiscal framework, committing to a reduction in the gross debt-to-GDP ratio to 50% (±1%) by 2030-31. As its first milestone, the Budget envisages a consolidation of approximately 50 basis points, bringing the ratio down to 55.6% in 2026-27. While this trajectory is slightly more conservative than expectations of close to a 1% reduction, it translates into a fiscal deficit of 4.3% of GDP in 2026-27, compared to 4.4% in 2025-26. Notably, this marks the slowest pace of fiscal consolidation in the post-pandemic period, comparable only to 2018-19, though at that juncture the fiscal deficit was anchored at a much lower level of 3.4% of GDP.

A closer examination of the fiscal arithmetic offers reassurance, a hallmark of the Finance Minister’s stewardship. Nominal GDP growth for 2026-27 has been prudently pegged at 10.0%, an assumption that may prove conservative in light of the impending GDP series rebasing to 2022-23, along with expanded coverage. This could provide a modest but meaningful buffer if warranted in a highly uncertain global environment. The accompanying estimated growth in gross tax revenues at 8.0% appears reasonable, with the government once again leaning on non-tax levers, notably dividends from the RBI and proceeds from disinvestment. The record dividend of ₹3.2 trillion budgeted from the RBI and financial institutions is expected to play a pivotal role in bridging fiscal requirements.

On the expenditure front, total spending is budgeted to grow by 7.7% in 2026-27, marginally higher than the 6.6% growth reflected in 2025-26 revised estimate. While revenue expenditure growth is set to taper, led by subsidies, capital expenditure is budgeted to expand by a robust 11.5%, a significant acceleration from the 4.4% recorded in 2025-26 revised estimate. This reorientation enhances the quality of expenditure, with the capex-to-revenue expenditure ratio rising to a two-decade high of 29.6% in 2026-27.

That said, the capital expenditure push is clearly on a moderating path. Over the three-year period from 2024-25 to 2026-27, average capex growth is estimated at approximately 9%, less than one-third of the nearly 30% recorded during 2020-21 to 2023-24, in the immediate aftermath of the pandemic. This signals a calibrated withdrawal of the government from its role as the principal investor in the economy, an inevitable necessity given the impending fiscal obligations arising from the implementation of the 8th Pay Commission in 2027-28. Encouragingly, early signs of a revival in private capital expenditure are already visible in 2025-26, supported by improving domestic consumption and the confidence engendered by policy continuity.

This brings the narrative full circle. Budget 2026-27 reinforces continuity across four critical policy pillars:

This brings the narrative full circle. Budget 2026-27 reinforces continuity across four critical policy pillars:

• Infrastructure development remains central, with commitments towards a new dedicated freight corridor from East to West, renewed emphasis on National Waterways, the development of high-speed rail corridors connecting seven key growth centres, and the proposed establishment of an Infrastructure Risk Guarantee Fund.
• Customs duty rationalisation has been undertaken with sensitivity to trade flows and inverted duty structures, particularly benefiting labour-intensive sectors such as marine products, leather, and textiles. Strategic manufacturing sectors, including nuclear power, mining, aerospace, and defence, stand to gain from targeted exemptions on imported inputs. To fully leverage recently concluded free trade agreements, the Budget has also announced an ambitious plan to simplify and streamline customs procedures over the next two years.
• Strengthening MSME liquidity through the augmentation of the Trade Receivables Discounting System, including mandating its use by central public sector enterprises for all MSME procurements, is expected to significantly improve cash flows and ensure settlement of dues within the prescribed 45-day timeframe.
• Deepening electronics manufacturing, building on India’s success in electronic components and mobile phone exports, is reflected in the doubling of the production-linked incentive outlay to ₹400 billion. This is complemented by exemptions for foreign firms supplying capital goods, equipment, and tooling to contract manufacturers in the electronics sector.

Beyond continuity, the Budget is distinctly forward-looking, particularly in its emphasis on the services sector. Recognising the sector’s outsized contribution to GDP, exports, and employment generation, the Budget extends support across both traditional and emerging segments ranging from IT, healthcare, and tourism to the orange economy, global capability centres, and artificial intelligence. Key measures include a substantial enhancement of the safe harbour threshold for IT services from ₹3 billion to ₹20 billion, a 20-year tax holiday for investments in data centres aimed at catalysing foreign direct investment into the sector, and the constitution of a High-Powered Committee tasked with positioning India firmly within global AI, technology, and innovation ecosystems.

In sum, Union Budget 2026-27 should be viewed as a comprehensive road map towards nation building. The measures announced by the Finance Minister are time bound and performance-oriented, with a clear focus on returns. The Budget embodies the ethos of an entrepreneurial state, as articulated by the Chief Economic Adviser in the Economic Survey, demonstrating policy continuity, strategic foresight, and disciplined execution as India advances towards its ambition of becoming a Viksit Bharat.