As the Economic Survey put it, India is in a “Goldilocks” zone. High gross domestic product (GDP) growth, low inflation and a stable policy regime — at a time of international conflicts, geopolitical tensions, and tariff and trade disruptions — are reasons for confidence.
The Survey said the economy had moved to a higher growth trajectory of 7 per cent from 6.5 per cent earlier, and projected growth of 6.8-7.2 per cent next year, building on this year’s 7.4 per cent. Even so, if India is to achieve developed-country status over the next two decades, the reform agenda must continue. That includes raising the investment rate from the current 30-31 per cent of GDP, improving competitiveness, lifting productivity, and reducing the incremental capital-output ratio. This Budget, therefore, is expected to provide a clear direction on that front.
To her credit, the finance minister has introduced several desirable features in recent Budgets, strengthening trust and confidence.
First, the Budget has generally been realistic in its revenue and expenditure projections, with outcomes broadly tracking the budgeted numbers. This lends stability and predictability. Second, fiscal consolidation has progressed steadily, even as growth has been supported through higher capital expenditure. Although household financial savings remain stuck at around 7 per cent of GDP, and consolidation has required the government to borrow less to leave more space for the private sector, it is important to achieve this without major disruption — and the finance minister has largely struck that balance.
Finally, while a shift to accrual accounting is not yet on the agenda, there has been an effort to avoid off-Budget borrowings and make the Budget more transparent.
The Budget numbers are largely on expected lines. Goods and services tax (GST) rationalisation was expected to weigh on tax collections, and the revised estimate for 2025-26 shows the Centre’s net tax revenue lower by ₹1.6 trillion. Even so, the fiscal deficit has been held at 4.4 per cent of GDP. This has been achieved partly through higher dividends from the Reserve Bank of India (RBI), partly through additional licence fees from telecom operators and receipts from spectrum sales, and to some extent through lower grants to states under centrally sponsored schemes.
Disinvestment receipts, however, continue to disappoint. The estimated ₹47,000 crore for 2025-26 has been cut to ₹33,837 crore in the revised estimate.
The finance minister has reiterated the fiscal consolidation goal of bringing the debt-to-GDP ratio down to 50 per cent (plus or minus 1 percentage point) by 2030-31. In line with that, the fiscal deficit is proposed to be reduced to 4.3 per cent next year.
Nominal gross domestic product (GDP) growth has been projected at 10 per cent, while net tax revenue is estimated to rise by just 7.2 per cent over the revised estimate of the previous year. It remains to be seen whether the government can mobilise ₹80,000 crore through disinvestment. Any shortfall on that front could, of course, be partly offset by higher dividends from the RBI.
Unfortunately, the finance minister has missed an opportunity to rationalise the customs tariff. Improving competitiveness requires lower and more uniform customs duties. One option would have been to set a clear goal of a uniform tariff rate of 7 per cent—designed to be revenue neutral—over a three-year timeframe. Tariff lines below 25 per cent could have been moved to 7 per cent immediately, with the remaining rates reduced in phases.
Instead, the Budget continues with selective tinkering. This can distort effective protection in unintended ways and creates more scope for lobbying.
On the tax side, the proposals largely focus on streamlining administration rather than changing the structure. The coexistence of the old and new tax regimes has persisted for long, and it may have been time to remove the option. Tax policy should primarily be about raising revenue, rather than pursuing multiple objectives through exemptions and carve-outs. A simpler system — with a broad base and low rates — works best, and concessions and preferences should be limited.
Instead, the Budget has offered additional concessions to micro, small and medium enterprises (MSMEs) and others. There was also significant expectation of reform to long-term capital gains tax, particularly to make it uniform across debt and equity mutual funds. The absence of such measures meant the Budget did not enthuse the stock market.
Separately, the Supreme Court’s January 2026 ruling that Tiger Global’s $1.6 billion stake sale in Flipkart to Walmart (2018) is taxable in India has revived the debate on source-based versus residence-based taxation. The Budget missed an opportunity to provide greater clarity on this issue.
 "Business as usual: Budget 2026 banks on stability, not structural change")
