Budget 2026: Confident yet anxious amid global and domestic uncertainty

Of Union Finance Minister Nirmala Sitharaman’s nine Budgets so far, this shows the least political anxiety. Yet, it is a Budget designed for geopolitically anxious times. Here’s how we square these contradictions. 

There was much demand and advice from companies, investors, and establishment-friendly economists to risk loosening up, take advantage of super-low inflation, and drive nominal growth. 

Print more money, sell some assets, and cut capital gains taxes to assuage estranged foreign portfolio investors, they said. Mostly, the contrary has been done. Securities transaction tax (STT) has been raised by up to 150 per cent to cool the markets instead of firing them up. This is political, as well as ideological and philosophical. The political part first. 

The reason we call this politically the least anxious Budget is that it has no new giveaways, tax cuts, or exemptions for the middle classes. Allocation to the states, if anything, has been curtailed marginally. 

There are no favours done to any allies or to “own” states whatsoever. This absence of electoral anxiety shows in nothing being on offer for the states going to the polls this year. 

This is political confidence. The government has shaken its post-2024 jitters. It knows its vote bank is intact. Of the four major states going to the polls it believes it has one in its pocket (Assam), is marginal in two (Tamil Nadu and Kerala), while West Bengal will be fought on polarisation. And even if any Kolkata rich are hurt by the Budget, they’d vote for the Bharatiya Janata Party anyway. 

The Budget has indeed woken up the sleeping markets, just not the way the government's fans would have expected. The tough action on futures and options (F&Os), and the subsequent finance-ministry statement that this was done to curb speculation is what we call both ideological and philosophical. Ideologically, the Rashtriya Swayamsevak Sangh has had a paternalistic and patronising view of the middle classes. 

Since they’re hardworking and talented but not always the smartest in the markets, they need to be protected — sometimes from themselves. Philosophically, there are questions over algorithmic trading where losers are simple millions and the winners often distant hedge funds with smart guys in $200 Hermes ties who game the algos. This was the Jane Street phenomenon. 

One hedge fund based overseas (the Securities and Exchange Board of India has provisionally stopped it) apparently had in India a company that would allegedly drive up prices of a stock with small buys in the morning and the overseas parent would short it in the afternoon. The “system” only woke up when its profit was approaching the $10 billion mark. How many lakhs of under-employed, retirees, even housewives would have to lose their hard-earned tens of thousands each to add up to these billions! 

The government didn’t like it, and has said so explicitly. But it saw the downside in stopping F&Os altogether because this is, after all, a globally accepted market practice and a route to price discovery. Hiking STT on each transaction three times is simply a case of throwing sand in the wheels -- if it will infuriate the foreign portfolio investors the Modi government won’t bother. They’d rather that the FPIs return as patient investors in the India story. This distinction between pure trading and investment is the philosophical point. Let’s call this the Jane Street amendment. 

This will, however, hurt this government’s favourites, the middle classes. Over two years as the FPIs cashed out and net FDI turned negative, the slack was picked up by domestic individual investors. The finance minister has spoken with pride about these millions of brave Indians investing in SIPs (systematic investment plans) unmindful. By December 2025 they owned more stocks on the National Stock Exchange than FPIs did. Will they take this fresh setback on the chins? This is a political risk. 

The government is confident, calm, and strapped up for the long term. The phrase “strapped up” is deliberate as we switch to our second point: This being a Budget also for great geopolitical anxiety. A bit like the captain asking passengers to keep seatbelts fastened as through turbulence. 

Nobody knows what Donald Trump’s next post on Truth Social would be if war with Iran resumes or if there is a truce. Will there be a settlement in Ukraine or hardening of postures? The future of tariffs? Oil prices? What to make of the purges in the Chinese military brass? Who’ll be in power in Bangladesh after the elections? When will Asim Munir become insecure and be back at our throats again? 

This is a lot of global and neighbourhood anxieties listed in just one paragraph. All of these provide good enough justification to play safe for now, to retain the fiscal headroom, build export competitiveness to take advantage of markets the new free-trade agreements will open up. 

That’s why the most welcome — if expected — shift is in defence budgeting. After 11 years of remaining frozen at around 1.9 per cent of gross domestic product (GDP), the defence Budget has gone up to 2 per cent. I’ve been writing consistently that India needs to just increase the defence share of GDP each year by 10 basis points until we get to 2.5 per cent. This year’s increase is exactly that: Ten basis points. Even better, this is the first time in 11 years that the armed forces have spent their entire capital Budget (₹1.8 trillion revised to ₹1.86 trillion). In each of the preceding years, they’ve been returning money unspent. In FY25 it was ₹16,000 crore. Those spending shackles, or absorptive capacity constraints (the expression the current Defence Secretary Rajesh Kumar Singh has used), have been shaken off. This is the Operation Sindoor shock therapy. 

This Budget is a politically confident government’s super-cautious move for turbulent times. You find it boring? Weren’t we told that the boring bankers were the best? 

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By special permission with ThePrint