Budget 2026: A Budget of Consequence? India’s Next Growth Phase Demands Long-Term Thinking

This budget needs to be less about short-term applause and more about India’s long-term positioning in a fractured global economy. Times will perhaps not change. We must.

Facts about the Indian Economy

India enters this budget cycle with a combination of macroeconomic strength and unresolved structural challenges. It is now the world’s fifth-largest economy in nominal GDP terms and remains among the fastest-growing major economies, with growth consistently above six percent despite global headwinds. Inflation has moderated relative to global peers, and monetary-fiscal coordination has helped keep price pressures broadly within the RBI’s tolerance band, even as food inflation remains episodic.

India’s macro fundamentals are materially stronger than they were a decade ago. Foreign exchange reserves remain above six hundred billion dollars, the current account deficit is manageable, and the banking system is far healthier after years of stress. Non-performing assets (a misnomer!) have declined sharply, credit growth has revived, and capital markets have deepened. Tax buoyancy has structurally improved following GST, and financial inclusion has expanded at the population scale through Jan Dhan and digital payments.

At the same time, India remains a low per capita income economy. Employment generation has not kept pace with headline GDP growth, manufacturing’s share of output has not yet seen a decisive step up, and consumption remains uneven, with rural demand still under pressure.

The defining feature of India’s economy today is macro strength combined with micro stress, resilient balance sheets, and stable aggregates alongside uneven income growth, fragile employment outcomes, and regional disparities.

Global Context

The global environment facing this budget is not merely cyclical but structural. The world is moving away from hyper-globalisation toward fragmentation driven by geopolitics, national security concerns, and industrial policy. Supply chains are being reengineered, capital flows are more selective, and interest rates are likely to remain higher for longer.

The United States and China are locked into a prolonged strategic and technological decoupling. Europe faces stagnation pressures, demographic decline, and fiscal constraints. In this environment, countries are being judged less on ideological alignment and more on policy credibility, infrastructure readiness, and execution capacity.

India stands out as a politically stable democracy with a large domestic market, improving infrastructure, and strategic relevance without being tightly bound to any single bloc. This budget will therefore be read globally as a signal of India’s seriousness about manufacturing, fiscal discipline, and long-term competitiveness rather than short-term stimulus.

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India’s Economic SWOT

India’s primary strength lies in its scale, combined with political and institutional stability. A large internal market, continuity of policy direction, expanding infrastructure, and population-scale digitisation form a strong base. Digital public infrastructure, such as Aadhaar, UPI, and GST, has quietly reduced transaction costs and improved state capacity.

The key weaknesses remain structural. Employment creation, especially for semi-skilled youth, has lagged behind aspirations. Manufacturing productivity is uneven across sectors and states. Frictions in land acquisition, labour flexibility, and judicial timelines continue to raise the cost of doing business. Human capital outcomes in health and learning vary widely across regions.

The opportunity before India is historic. Global supply chains are being re-drawn, and sectors such as electronics, green energy, defence manufacturing, logistics, data centres, and semiconductors offer scalable growth. With the right alignment of skilling, infrastructure, and incentives, India can absorb global capital seeking both scale and certainty.

The principal threat is complacency driven by headline growth numbers. Climate stress, energy transition risks, global financial volatility, and rising inequality could constrain momentum. A failure to translate growth into broad-based employment could eventually create economic and social pressure.

What the BJP Government Has Managed to Achieve Since 2014

The BJP government’s economic record since 2014 is best understood as one of structural correction rather than short-term stimulus. It inherited an economy facing twin deficits, banking stress, and weakened investor confidence, and has focused on rebuilding fundamentals.

Key achievements include stabilising macro indicators, implementing GST to create a unified national market, and cleaning up the banking system through the Insolvency and Bankruptcy Code, recapitalisation, and governance reforms. Public infrastructure creation has accelerated significantly across roads, railways, ports, and airports. Digital public goods have expanded state capacity and reduced friction across the economy.

Welfare delivery has shifted toward targeted, asset-linked support through direct benefit transfers, reducing leakages and improving efficiency. The introduction of PLI schemes, defence indigenisation, and renewed focus on manufacturing have repositioned India in global supply chains, even though outcomes are still evolving.

The central unfinished agenda remains employment intensity, particularly in manufacturing and urban services, and improving the quality and consistency of outcomes across states.

Expectations from the Budget

This budget will be assessed less on headline announcements and more on credibility and direction. Fiscal discipline will be closely watched, including the deficit trajectory, capital expenditure allocation, and off-budget borrowing. Markets and rating agencies will focus on whether consolidation remains on track.

There is also an expectation of calibrated support for consumption and employment, particularly for the middle class, MSMEs, and rural demand, without reverting to fiscally reckless populism. Tax rationalisation, housing support, credit flow to small businesses, and skilling incentives are areas of interest.

Finally, the budget is expected to reinforce India’s long term competitiveness through sustained public investment, logistics and manufacturing support, green transition funding, and deeper centre-state coordination.

The challenge is to address micro stress without weakening macro strength, signalling confidence without triumphalism, and reform without austerity.

Let me recap the caution. FDI and FII are a barometer of the external view of our headline GDP growth. Corporate revenues and income growth should have a fair proportion of the percentage growth of GDP. We need to ensure private capital expenditure is up. The government alone cannot and should not or do the heavy lifting. FDI at 0.1% of GDP is an alarm. We must up the R&D investments from our measly 0.65% to GDP. China is ahead of 4% to GDP and has results to show for it.

Our currency is weak, and unless we import capital that comes to stay, it’s unlikely to ease. Lastly, the ease of doing business agenda must be an always-on process.

This budget is consequently an agenda for how we will shape up as a coming power on the world stage. More importantly, it’ll determine if we have the staying power once in the top 4.

Also read: Budget 2026: What MSMEs, AI, Infrastructure & New-Age Workspaces Want?