Budget 2026 was more strategic than tactical; makes India 'future ready'

Budget 2026 focuses on fiscal discipline, capex-led growth, manufacturing, and AI investments, signalling a strategic shift to make India future-ready, says Jitendra Sriram

The Union Budget for FY2026-27 was a pleasant surprise as it was low on "politically correct" noises towards agriculture and labour, and showed a surprisingly clear intent while focussing towards a "Viksit Bharat" journey. 

 

First and foremost the fiscal glide path was maintained. There were some apprehensions in some sections of the market that when the government attempts to change the goal post from fiscal deficit (as a percentage of GDP) to debt-to-GDP, it may be used as a tool to seek fiscal leeway. That was clearly not the case and the glide path was very well stuck to. 

 

 

Centre has targeted a fiscal deficit at 4.3 per cent for FY27, which broadly aligns with its consolidation road map. Centre continued its thrust on capital expenditure, considering a 11 per cent year-on-year (Y-o-Y) growth from FY26 revised estimates. The assumptions were reasonable with 10 per cent nominal GDP, ~2.5 per cent contraction in GST collections which make the fiscal math feasible.

 

The Budget has envisioned a recourse to short-term financing to the tune of ₹1.3 trillion. This may lead to some flattening of the yield curve especially for NBFC's which run an active asset liability mismatch.

 

The second most heartening fact was that the speech started with the challenges faced by industry on access to critical materials and vendor supply chains. It detailed the 7 areas for scaling manufacturing (biopharma, semicon 2.0, rare earths, strong capital goods, container manufacture, textiles and sports goods). The thrust on central capex was retained with central capex targeted at ₹12.2 trillion. The other aspect was the cognizance of global capex and a desire to be part of that journey. The biggest capital spend area globally is into AI & data centres and giving long term tax breaks till 2047 was a positive surprise to ensure policy stability for companies investing in India.

 

The third was a targeted increase in waterways share, dedicated freight corridors, carbon capture for a greener core sector (power, steel, cement, refineries and chemicals) which reflects a desire to be future ready.

 

Taxation related proposals were largely neutral on the budget though the proposal to make buybacks more shareholder friendly was a positive.

 

In conclusion, we would say it was more strategic than tactical to play to the galleries and was a sea change of evolution of the Budget as a policy document. In our view, the focus on capex, an acceleration in nominal growth targets and fiscal discipline augurs well for markets. Capital market plays may be little negatively impacted as the government tries to curb excessive speculation over investment. 

 

The Budget was positive for the commercial vehicle space, parts of capital goods catering to defence, railways and data centres and central government power utilities witnessing a large bump up in capex. It was mildly positive to neutral for most other sectors.

 

With valuations at long term averages and earnings set to recover from FY26 into FY27, we would be positive on markets with an expectation of low teen earnings growth for markets.   

      

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Jitendra Sriram is a senior fund manager at Baroda BNP Paribas Mutual Fund. Views expressed are his own.