India’s Union Budget 2026 reflects a deliberate choice to reinforce macroeconomic stability, fiscal discipline and competitiveness-led growth rather than pursue disruptive, one-off reforms, S Mahendra Dev said in an exclusive interview with Firstpost, noting that at a time of heightened global uncertainty driven by trade fragmentation, geopolitical tensions and shifting supply chains, the budget builds on sustained public capex, structural reforms and expanding free trade agreements to strengthen domestic capacity, crowd in private investment and position India for durable growth in the years ahead.
Edited Excerpts:
How do you assess the Union Budget 2026 in the current global and domestic context? Do you believe this budget addresses India’s most pressing economic needs at this juncture, or does it lean more towards continuity than bold reform?
India is entering FY27 with macroeconomic stability, sustained growth, moderating inflation and resilient financial institutions. In an uncertain global environment marked by trade fragmentation, technology shifts and supply chain risks, the Budget reinforces India’s approach of confident global integration while strengthening domestic capacity.
The budget lays out a coherent framework anchored in the three kartavyas which the government is undertaking. The first is accelerating economic growth through productivity and competitiveness. Second is about fulfilling aspiration of the people and the third related to Sabka Sath, Sabka Vikas and inclusivity. Within this broad framework the Budget has mobilized strategic policy support for key sectors such as include biopharma, semiconductors, electronics components, rare earths, chemicals, capital goods, textiles and sports goods.
Emphasis is placed on domestic value addition, standards, testing, research and skilled manpower. There are incentives for MSMEs, infrastructure and urbanization which have a key role in the India growth story.
At the same time, public capex has continued its upward trajectory with the allocation for FY27 at Rs 12.2 lakh crore. The budget builds on the slew of reforms which the government has announced in 2025 including comprehensive economic reforms towards creating employment, boosting productivity and accelerating growth. In this context, over 350 reforms have been rolled out, including GST simplification, notification of Labour Codes, and rationalisation of mandatory Quality Control Orders. High Level Committees have been formed and the Central Government is working with the State Governments on deregulation and reducing compliance requirements.
So that way, one budget cannot give all the Viksit Bharat things. It’s a continuation over time. So if you see the budget proposals, they are on fiscal discipline, and then now the capital expenditure is increasing in the last few budgets. So the budget focus is more on how to increase the competitiveness, productivity in the light of global uncertainty
From a quantitative standpoint, how significant is the Indian-EU trade deal for India’s economy? What kind of export growth potential do you see emerging from this agreement, and which sectors stand to benefit the most?
India and the EU have a combined market of $24 trillion and 2 billion people. In terms of bilateral merchandise trade there has been sustained growth with total trade at USD 136.54 billion with India exporting around USD 75 billion to the EU in 2024-25. The level of trade is significant. India secures preferential access across over 99% of its exports by value, with immediate or phased tariff elimination in key labour-intensive sectors such as textiles, apparel, leather, footwear, gems and jewellery, marine products, chemicals, plastics and engineering goods.
This sharply improves competitiveness in one of the world’s largest consumer markets, enables MSMEs to integrate into European value chains, and supports large-scale job creation. At the same time, balanced rules of origin, self-certification, SPS/TBT cooperation, and regulatory predictability reduce compliance costs and strengthen ease of doing business, while safeguarding sensitive domestic sectors.
Beyond goods, the FTA powerfully advances India’s strengths in services, talent, and innovation. Deep commitments across more than 140 services sub-sectors, alongside a robust mobility framework for professionals, create new opportunities for IT, business, professional, education, and emerging knowledge-based services, reinforcing India’s role as a global services hub. Preferential access for agricultural and processed food exports boosts farm incomes and rural livelihoods, while protections for sensitive sectors preserve policy space. Strong TRIPS-consistent IPR provisions, recognition of traditional knowledge, and support for AYUSH services further expand India’s cultural and economic footprint. Overall, the FTA transforms India–EU ties into a strategic growth partnership, diversifying trade, attracting investment, enhancing resilience, and positioning both economies as trusted partners amid global uncertainty.
The budget assumes a 10 per cent nominal GDP growth for FY27, while the CEA has pegged real GDP growth at 6.8–7.2 per cent. This implies an inflation of around 2.8 per cent. Do you believe India has entered a phase of structurally lower inflation, or is this more cyclical in nature?
The lower inflation is largely due to a disinflationary trend in fuel and food. RBI inflation forecast for FY26 stands at 2.0 per cent, while for Q1 and Q2 of FY27 the forecast stands at 3.9% and 4% respectively. Thus, the current levels may be more cyclical in nature. However, the inflation outlook remains benign going forward supported by gradual pass-through of GST rate rationalization and favourable supply side conditions.
Given the Trump announcement of a US-India trade deal, the tariffs on India are lower than those on its competitors such as Vietnam, China etc. Do you feel this is intertwined with the measures in the budget to boost expert competitiveness?
Yes, these developments are closely intertwined and mutually reinforcing. The relatively lower tariffs for India under the proposed US–India trade arrangement, especially when compared with competitors, improve India’s near-term price competitiveness in the US market.
This external tailwind dovetails with the Budget’s focus on boosting export competitiveness through higher public capex, infrastructure upgrades, MSME support, trade facilitation, and measures to reduce compliance and transaction costs. Together, these steps strengthen India’s supply-side capacity and ensure that exporters can respond quickly and at scale to new market opportunities.
At the same time, the rapid pace of FTA signings provides durable, rules-based market access across a much wider geography, reducing over-dependence on any single market. Lower tariffs abroad, combined with domestic reforms to improve productivity, quality, and scale, can have a powerful multiplier effect on exports.
The budget targets ₹80,000 crore from asset monetisation and divestment in FY27.Given past shortfalls in meeting such targets, how confident are you that the government can achieve this number? What has changed this time to improve execution?
Over the last few years, the government has moved away from ad-hoc divestment towards a more systematic approach under the National Monetisation Pipeline, with a clearer asset inventory, standardised concession frameworks, and greater reliance on transparent, market-based mechanisms. This has improved investor confidence and reduced execution risks that earlier stemmed from valuation disputes, legal challenges, and weak project preparation.
What has also changed is the broader macro and market environment. Balance sheets of banks and corporates are stronger, infrastructure investors have deeper pools of long-term capital, and domestic financial markets are more capable of absorbing such transactions. Thus, given the positive sentiment, I am optimistic about the targets.
The RBI Governor recently described India as being in a ‘Goldilocks moment.’ Given ongoing geopolitical risks and global economic uncertainty, how long do you think this favourable phase can realistically last?
India’s present “Goldilocks” phase reflects more than a cyclical upswing; it is grounded in strengthened macroeconomic fundamentals and sustained policy credibility. The coexistence of relatively high growth with low and stable inflation, a manageable current account deficit, improved quality of public expenditure through higher capital outlays, and a credible fiscal and monetary policy framework provides resilience against global volatility. Even amid heightened geopolitical risks and global economic uncertainty, these fundamentals suggest that the favourable growth–inflation balance can be sustained over the near to medium term, including through FY26–FY27.
Given the current reform push and if complemented by improved state-level governance, fiscal discipline, and efficient delivery of public services, India’s current Goldilocks moment has the potential to evolve into a durable growth phase, consistent with the medium-term objective of sustaining 7–8 per cent growth and advancing the Viksit Bharat 2047 vision.
Now that the India–US deal has been signed, do you feel a sense of relief regarding rupee depreciation? Do you think there will be no further depreciation now that there is clarity and FPIs and FIIs may return to Indian markets?
We cannot say there will be no more depreciation because the rupee follows a market-based, supply-demand mechanism. However, this will help reduce pressure on the rupee because the uncertainty is now over.
Earlier, FIIs and FDIs were affected, and investors were also putting money into AI and stocks in the US. Now that this phase may be largely completed, some capital could return to India. As mentioned earlier, the China Plus One strategy could also bring more FDI.
Already, some states are receiving investments from companies like Google, Amazon, and Microsoft. For instance, Andhra Pradesh has received about $15 billion from Google for data centres.
How do you assess the India–US trade deal when the fine print is still unclear—beyond the headline tariff cut from 50% to 18%—especially amid concerns that India may be compromising on agriculture and dairy while allowing 0% duty on US imports?
I think it is a huge opportunity for both countries—the largest democracies in the world. The first point is that there has been a lot of uncertainty in the global economy, the Indian economy, and even in comparison with the US. That uncertainty is now gone, and it had an impact on FII, FDI, and the rupee.
I think these factors will now turn positive, and we expect FII and FDI flows to return to India over the next year or so. We will also get the China-plus-one advantage, because an 18% tariff compared to China’s 34% or so gives us a clear edge. Most other countries, except Japan, the EU, and the UK, face higher tariffs.
On agriculture, the government has clarified that there will be no compromise. That includes dairy, soybeans, corn, and other sensitive areas. So on balance, this is a win-win situation forboth countries.
And how do you explain a situation where there is a 0% tariff on imports from the US, but our exports are charged at 18%?
Maybe some manufacturing think, we need to look at the fine print. Because, for example, steel and some other items still face a 50% tariff there. Similarly, on our side, what are the other products? Perhaps some manufacturing items that we are not producing domestically where imports help our exports could be part of the explanation. But we have not been given that fine print yet.
Tariffs have been reduced is this just one factor that is motivating you to say that China Plus One is surely going to benefit India and that FDIs are bound to come to India?
China Plus One—the tariffs are only one aspect. In this Budget, the government has made facilitation for productivity, competitiveness, and ease of doing business. With that, I think other countries’ FDI and investments will also come because of these reforms. As the Finance Minister mentioned many reforms have been done in the last six months or so.
Now we have a trade deal with the European Union, we have a trade deal with the US, and we have had a trade deal with the UK as well, and Oman. Do you feel there is a possibility of having an FTA with China going forward?
This is the government’s decision. If it benefits the country, the government will consider it. Already, we have collaborations with China, and the government will take decision at appropriate time to decide whether it is necessary or not.
So, what is your thought?
I can’t give my own thought. I am part of the government.
At what point do you feel depreciation will start becoming a concern for us?
As I mentioned earlier, it is a market-determined phenomenon, and the RBI intervenes only when there is volatility. Also, depreciation provides some support to exports. Typically, depreciation can lead to higher inflation, but that problem is not present right now. The concern arises when depreciation starts pushing inflation higher. In that sense, levels around 91–92 are cyclical and not a concern, in my view.
Till 92, you’re saying?
I mean, whatever the number is—we don’t put a specific number to it.
The government wants to achieve a USD 1 trillion export target by 2030. Do you feel we will be able to achieve this in the backdrop of the geopolitical uncertainties we are seeing all around?
Compared to the earlier phase of globalisation, where China and East Asia benefited, we are now seeing much more protectionism. In spite of that, because of our measures and other initiatives, we are confident, especially with FTAs and the opportunities they create.
Domestically as well, if the focus remains on productivity and competitiveness, higher-quality products will emerge. I think we can achieve these targets despite the protectionism at the global level.
Can you throw some light on private sector capex? Because that has remained a big concern for a long period.
Recent CMI data shows there are some green shoots in private capital expenditure. Yes, even the Finance Minister has mentioned that. It is happening, and with these measures, we can expect more.”
Another important aspect is RBI dividends. RBI dividends as a proportion of non-tax revenue have increased from 23% to 43%, and RBI dividends are now higher than the revenue of any PSU. There is a greater reliance on RBI dividends.
I don’t think the government is fully dependent on that. RBI dividends are higher now, and that benefits the government. But the government is also getting other non-tax receipts from public sector enterprises. Moreover, there is disinvestment, and that complements this.
Do you feel that the quality of revenue streams where reliance on dividends is increasing is sustainable, or should the strategy change over a period of time?
The tax base will increase over time. Hopefully, we will get more tax revenue as well as non-tax revenue. Both need to increase.
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