Budget may make India an investment-led and export-capable economy

The Union Budget presented on February 1, 2026 marks a subtle but important transition in India’s economic management. After years of using the state’s balance sheet to absorb pandemic shocks, fund infrastructure and stabilise growth, the government is now attempting a delicate pivot: withdrawing fiscal stimulus without undermining momentum. This Budget does not aim to dazzle. Instead, it seeks to convince investors that India is becoming a predictable, investment-grade economy.

The numbers: discipline without austerity

The headline figures reflect this balancing act. The fiscal deficit has been pegged at around 4.3 per cent of GDP, a steady glide path towards medium-term consolidation. Market borrowing has been trimmed relative to GDP, reducing pressure on bond yields. Revenues are expected to rise primarily through tax buoyancy and formalisation, not higher tax rates. Capital expenditure continues to rise in absolute terms, but at a slower pace than in the past two years, signalling that the heavy lifting of public-led recovery is nearing completion.

 

This is not austerity. But it is clearly the end of fiscal indulgence.

Focus areas: from stimulus to competitiveness

 

The government’s strategic priorities have sharpened. Infrastructure remains central, but the emphasis has shifted from volume to efficiency — logistics, freight corridors, urban transport and power transmission that reduce the cost of doing business. Manufacturing policy has moved decisively toward strategic autonomy, with semiconductors, chemicals, rare-earths and biopharma now treated as economic as well as geopolitical assets. Services — long India’s invisible growth engine — finally receive explicit policy recognition through employment, skilling and export-led frameworks.

 

The organising idea is clear: India is no longer trying to grow fast; it is trying to grow well.

Sectors likely to benefit

Several sectors emerge as clear winners. Infrastructure and capital goods stand to gain from continued public investment and private-sector crowd-in. Electronics, semiconductors and specialty manufacturing receive a long runway of policy and financial support. Pharmaceuticals and biotech move up the value chain as India seeks to become more than the world’s low-cost drug maker. Financial markets, especially corporate bonds, asset management and municipal finance, benefit from the push to mobilise long-term capital.

 

In short, this is a Budget for builders rather than traders.

Sectors facing headwinds

By contrast, consumption-driven sectors receive little direct support. There are no big tax cuts, subsidies or rural cash transfers to stimulate demand. Low-value, labour-intensive manufacturing may struggle as incentives tilt towards higher-technology and capital-intensive industries. Parts of the informal economy will continue to feel the squeeze as digitisation, compliance and formalisation accelerate.

 

The government is quietly signalling that it is prepared to tolerate some pain in legacy sectors to achieve higher productivity in the new ones.

The long-term economic impact

Over time, this Budget is likely to make India a more investment-led and export-capable economy. By lowering logistics costs, deepening capital markets, and embedding advanced manufacturing into its industrial base, India improves its chances of sustaining 6–7 per cent real growth without recurring crises. Just as importantly, it reduces vulnerability to external shocks — whether in energy, technology or geopolitics.

 

This is how middle-income countries escape the middle-income trap: not by spending more, but by spending better.

 

Conclusion

India’s Budget for 2026–27 will not excite voters. But it may reassure investors. It replaces the language of rescue with the language of competitiveness, and of hand-holding with that of institution-building. If implemented faithfully, it nudges India closer to the kind of economy that does not need to promise growth — because growth becomes the default outcome.      =============  Disclaimer: This article is by Sujan Hajra, Executive Director and Chief Economist, Anand Rathi Group. Views expressed are his own.