After ticking many firsts—from presenting the budget on a Sunday to formulating it from Kartavya Bhawan—Finance Minister Nirmala Sitharaman, clad in a Kanjeevaram saree from Tamil Nadu, stood up to present her ninth budget in a row and the third under Modi 3.0. The 85-minute speech reflected continuity, caution, and calculated ambition.
Against the backdrop of unfolding geopolitical complexities, Sitharaman cautiously kept the growth engines firing while ensuring that the fiscal consolidation roadmap remained firmly in focus. Predictably, the budget carried the hallmark of a Sitharaman exercise—capex-led growth combined with fiscal prudence.
The Union Budget 2026, in many ways, sought to address geopolitical uncertainties by rolling out a raft of measures focused on high-tech sectors, mainstreaming artificial intelligence, and announcing policy initiatives aimed at insulating the economy from external shocks.
“Some measures announced in the budget are likely to have multi-decadal impacts on the Indian economy,” the finance minister said at the post-budget press conference. Chief Economic Advisor V Anantha Nageswaran echoed this view, describing Budget 2026 as one that focuses on building strategic resilience in a fraught geopolitical environment.
“This budget was more about continuity, and the government has successfully kept some buffer and headroom to grapple with geopolitical bombshells that may emerge in the future,” economist Nirupama Soundararajan told Firstpost. Sitharaman herself acknowledged that the biggest challenge while crafting the budget was the “unseen magnitude of geopolitical uncertainty beyond what we had factored in during preparation.”
Building Strategic Resilience
As highlighted by Nageswaran, the intent to build strategic resilience runs through the budget. Measures ranged from setting up rare earth mineral corridors to announcing tax holidays until 2047 for foreign companies providing global cloud services through data centres located in India—a move aimed at attracting global investment into critical digital infrastructure.
The 15 per cent increase in defence spending aligns with the broader global trend of nations ramping up military expenditure amid rising geopolitical tensions.
Recognising the strategic importance of rare earth minerals, Sitharaman proposed support for mineral-rich states such as Odisha, Kerala, Andhra Pradesh and Tamil Nadu to establish dedicated Rare Earth Corridors covering mining, processing, research, and manufacturing, with the aim of reducing import dependence.
Boosting exports was another focus area. Initiatives spanning leather, textiles, semiconductors, pharmaceuticals, and IT services were aimed at enhancing export competitiveness. The Finance Minister announced duty-free imports of specified inputs and extended the export obligation period for final products from six months to one year.
Along similar lines, Budget 2026 allowed duty-free imports of 18 processing inputs used in seafood exports, providing a fillip to India’s marine exports in global markets.
Geopolitics at Play
Diplomatic equations also found reflection in India’s external aid allocations. Assistance to Bangladesh was halved to ₹60 crore in FY27 from ₹120 crore in FY26 amid bilateral tensions. Aid for Iran’s Chabahar Port was slashed to zero from a budget estimate of ₹100 crore in FY26 and a revised estimate of ₹400 crore, following US sanctions.
In contrast, assistance to Bhutan was increased to ₹2,280 crore in FY27 from ₹2,150 crore in FY26. Aid allocations for Nepal and Afghanistan also saw an uptick, while assistance to Latin American countries was doubled compared to FY26.
Macro That Matters
At the macro level, several focus areas remained unchanged—foremost among them the continued heavy lifting on capital expenditure, a cornerstone of the Modi government’s growth strategy driven by its strong multiplier effect.
The Union budget 2026 raised capital expenditure to ₹12.2 lakh crore, an increase of 11 per cent over ₹11.1 lakh crore in the previous budget. Effective capital expenditure—which includes grants-in-aid for asset creation—stood at ₹17.1 lakh crore, including ₹4.9 lakh crore in grants-in-aid capex.
While capex as a proportion of GDP remained unchanged at 3.3 per cent, the proportion of effective capex rose from 3.9 per cent to 4.4 per cent.
Fiscal consolidation also stayed firmly on track. The fiscal deficit target for FY27 was pegged at 4.3 per cent of GDP, marginally lower than 4.4 per cent in FY26. The government reiterated its commitment to reducing the debt-to-GDP ratio—a key global benchmark—from 56.1 per cent in FY26 to 55.6 per cent in FY27, with a longer-term target of 50 per cent by FY30. This new fiscal anchor is expected to work in tandem with the fiscal deficit framework.
“Our fiscal glide path will continue. Fiscal deficit will remain the operational target to achieve the estimated debt-to-GDP ratio. “We are not moving away from fiscal discipline,” economic affairs secretary Anuradha Thakur said.
Markets, however, had priced in a sharper consolidation, with expectations of a 4–4.2 per cent fiscal deficit for FY27. Responding to this, Sitharaman defended the chosen path, stating, “The fiscal deficit target of 4.3 per cent is realistic and responsible. Drastic changes do not work well. Keeping it within a credible band builds confidence.”
The nominal GDP growth assumption for FY27 has been pegged at 10 per cent, while the Economic Survey projected real GDP growth of 6.8–7.2 per cent.
Though some experts termed this conservative, the finance minister described the nominal growth estimate as realistic. With nominal growth pegged lower, implied inflation is expected to be around 2.8 per cent, signalling a benign price environment. Sitharaman also agrees that in the near future, inflation is likely to stay at the lower end.
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