Budget 2026 bets big on industrial growth Premium

The Union Budget 2026-27 skips specificities and maintains continuity over short-term policy stimuli

Budget 2026-27 comes at a time when the economy is experiencing a rare goldilocks period of high economic growth and low inflation. The Indian economy has become the fourth largest, overtaking Japan, retaining its tag of being one of the fastest growing economies. Beneath the headline numbers lie some inherent challenges, which could be amplified by the uncertainty emanating from the geopolitical crises and tariff wars, and have the potential to hinder long-term growth. A fine balance between optimism and realistic assessment is needed at this juncture to sustain growth and enhance welfare. The Budget attempts this with a slew of long- and short-term measures. It lays out a grand vision, skips specificities and maintains continuity over short-term policy stimuli.

The raise in the capex target to ₹12.2 lakh crore for FY27 from ₹11.2 lakh crore earmarked for the current fiscal signals continuity in maintaining growth primarily fuelled by public infrastructure expenditure. Reaffirming a commitment to fiscal consolidation while continuing to prioritise capital spending to support growth, the fiscal deficit target has been set at 4.3% of GDP for 2026-27.

The Budget shows that the overarching macro policy objective is to stick to fiscal prudence as the proposed numbers seem to be on the path of targeting the debt-to-GDP ratio of 50% in the midterm though it would be at 55.6% this year. Fiscal deficit involves a gross borrowing of ₹17.2 trillion and a net borrowing of ₹11.7 trillion.

Though the net outflow from the market is the same, the gross borrowing is higher than last year. Growth in nominal GDP has been assumed to be above 10%, which appears more realistic. When we assume growth of 6.8%-7.2% in real GDP, as in the Economic Survey, inflation will be at 2.9%-3.2% in terms of the GDP deflator. This tends to indicate an average CPI inflation of closer to 4%-plus in the year ahead. These numbers will change when the new series of GDP is published.

However, there may not be too much room for further rate cuts in this scenario, given the larger borrowing programme.

Marking a stark departure from earlier Budgets, the focus on the manufacturing sector was right in the beginning of the Finance Minister’s Budget speech. There is a concerted attempt to push industrial growth by targeting the emerging, legacy and the Micro, Small, and Medium Enterprises (MSME) including the khadi and handicrafts sectors.