Elusive Investments, Silent Disinvestments: Budget's Real Test

India approaches Union Budget 2026 at a moment of deceptive comfort. Output is expanding, consumption has held up better than feared, and public capital expenditure has been steadily amplified to support demand. On the surface, the economy appears vigorous. Yet headline growth obscures the deeper weakness that successive Budgets have failed to correct. The central challenge is not the pace of GDP expansion. 

It is the persistent shortfall in private investment and the repeated inability to translate disinvestment intent into outcomes. They shape whether India’s youth find productive work, whether firms modernise and scale, and whether the state can release capital locked in commercial enterprises for social and strategic priorities.

Private investment remains the missing engine of India’s growth story. Despite years of reform attempts (and with unattempted reforms) and improved macro stability, corporate capital formation has yet to revive decisively. Gross fixed capital formation is projected to rise in 2025–26, but its composition is revealing. The investment impulse has come overwhelmingly from the public sector. Government capital outlay for the current fiscal stands at roughly ₹11.2 trillion, a historically large commitment that has underwritten infrastructure expansion across transport, logistics, and urban development. This public effort has been necessary and, in the short run, effective. But it also sharpens the central question confronting policymakers. Why has private capital remained hesitant even as the state spends at scale?

The answer lies less in balance sheet stress and more in confidence. Corporate leverage has eased, banks are better capitalised, and liquidity conditions are not binding. Yet boardrooms remain cautious. Long-term investment decisions depend on demand visibility, regulatory predictability, contract enforcement, and the credibility of policy execution. Public investment can seed future private spending only when these conditions are met. Without them, public capex risks becoming a substitute rather than a catalyst, sustaining growth today while leaving the investment cycle incomplete tomorrow.

This imbalance is compounded by the quiet retreat of disinvestment. Year after year, targets are announced with ambition. Year after year, actual receipts fall far short. What was once framed as a cornerstone of structural reform has been reduced to an aspirational budget line. Historical data tells a stark story of repeated underperformance, with realisations collapsing to levels that would have seemed implausible when disinvestment was positioned as a tool to reshape the state’s economic role. Occasional stake sales through market offerings provide marginal fiscal relief, but they do not amount to a strategy.

At some point, responsibility must become explicit. The persistence of weak private investment and stalled disinvestment is not an abstract failure of systems. It is the outcome of choices made, deferred, or avoided by the Union government’s political executive. Markets do not demand perfection, but they do demand clarity of intent and consistency of action. When successive Budgets reiterate reform ambition without binding timelines or ownership, credibility erodes. Budget 2026 must therefore be judged not only on what it announces, but on whether it is willing to bind itself to outcomes that can be independently measured and publicly scrutinised.

One such test would be unmistakable. The budget should place before Parliament a time-bound disinvestment and asset monetisation calendar, naming enterprises, sequencing transactions, and committing to a decisive reduction in state ownership in competitive sectors. This would not be a fiscal manoeuvre but a signal of reform seriousness. In the absence of such specificity, disinvestment will remain a residual aspiration rather than a governing priority. 

The implications extend well beyond revenue arithmetic. Disinvestment is not merely about raising funds. It is about improving efficiency, deepening markets, and signalling seriousness about reform. When the state withdraws from commercial activity, enterprises gain autonomy, competition intensifies, and capital is redeployed to areas where public provision is indispensable. When it does not, inefficiencies persist and credibility erodes. Persistent underperformance on disinvestment sends a clear message to investors. The political willingness to shrink the state’s commercial footprint remains limited.

Recent Budgets have attempted to bridge fiscal gaps through exceptional receipts rather than durable reform. A prominent example is the record central bank dividend in 2024–25, which exceeded ₹2.6 lakh crore. Such windfalls ease near-term pressures and help meet deficit targets, but they are, by definition, one-off. Treating extraordinary transfers as a recurring instrument of fiscal consolidation is risky. It masks the absence of reliable non-debt capital receipts and delays the hard decisions needed to unlock value from public assets. Over time, this approach weakens the credibility of fiscal projections and blurs the line between prudence and expediency.

These choices carry heightened consequences because of India’s demography. A young and expanding workforce is often portrayed as an automatic dividend. It is not. Demography creates potential, not outcomes. Without sustained private investment, productivity growth, and enterprise expansion, the promise of demographic advantage will fade. Public spending cannot absorb the scale of employment India requires, nor can informal activity deliver rising living standards. Only a confident, investing private sector can generate the jobs and incomes necessary to convert population into prosperity.

Union Budget 2026 therefore cannot afford incrementalism. It cannot rely on the hope that growth alone will eventually coax private capital off the sidelines. What is required is political courage expressed through clear reform choices and credible execution.

The first imperative is to address, directly and unambiguously, the constraints holding back private investment. Regulatory simplification must move beyond central announcements to actual reduction in friction at state and local levels where projects stall. Tax policy must prioritise certainty over novelty, with faster dispute resolution and fewer retrospective anxieties. Infrastructure pipelines must be matched by transparent contracting frameworks and predictable risk allocation so that private capital can commit over decades, not just fiscal cycles.

The second imperative is to restore credibility to disinvestment. This requires more than conservative targets. It demands a time-bound roadmap that identifies assets, sequencing, and accountability. Strategic sales must be pursued with consistency, and asset monetisation must be institutionalised rather than improvised. If India seeks deeper capital markets and sustained investor confidence, the state must demonstrate that it is willing to exit where markets can perform better.

The third imperative is to refine fiscal consolidation by focusing on quality, not optics. Deficits have narrowed from pandemic peaks, but consolidation driven by compressed spending or episodic receipts is fragile. Capital expenditure must remain protected, but it must also be complemented by reforms that crowd in private investment rather than crowd it out. Fiscal discipline should reinforce growth by enabling reform, not replace it.

India’s growth story remains compelling, but it is not self-sustaining. Public spending has bought time. That time must now be used to unlock private capital and re-establish confidence in reform delivery. Union Budget 2026 will be judged not by how balanced it appears, but by how boldly it confronts this reality.