Will the Budget Truly Reignite Industry Confidence?

In recent years, Indian industry’s interest in the Union Budget has waned, as major policies now originate outside the Budget cycle, often from the Prime Minister’s Independence Day address or through announcements made during the year. These measures are introduced in response to global or domestic economic developments, sometimes as surprise moves without prior consultation or advance signalling, rather than as part of a structured set of strategies for economic growth and inclusive development. The Budget therefore largely serves to operationalise these announcements, allocate funds to schemes and investments, and make incremental adjustments to direct taxes and import duties, with the critical Goods and Services Tax remaining outside its scope.

On the positive side, Budgets over the past few years have adhered firmly to a fiscal consolidation roadmap, imparting macroeconomic stability to the economy. General government debt as a percentage of GDP surged in 2020-21 due to Covid-related relief measures and the contraction in GDP, but strenuous efforts have been made since then with the ratio declining from 87.7% to 80.6% in 2023-24. This has helped support industry’s access to capital, check inflation and moderate interest rates, although debt levels remain well above pre-pandemic levels.

The government’s commendable focus on infrastructure development through enhanced capital expenditure has been a primary Budget achievement, resulting in lowering of logistics costs in the country. Effective capital expenditure has gone up from ₹6.4 trillion in 2020-21 to a budgeted estimate of ₹15.5 trillion in 2025-26. Significant progress has been made in roads and highways, airports, multi-modal parks, and railway electrification over the years. While public capex as a percentage of GDP has declined from the pandemic year of 2020-21, the 2025-26 Budget Estimate of 14.2% remains higher than the pre-pandemic trend of just over 12%.

A notable strategy has been raising finances for infrastructure development. Institutions such as The National Bank for Financing Infrastructure and Development, National Investment and Infrastructure Fund, along with infrastructure and real estate investment trusts, have helped attract global and domestic capital into large projects.

Structural Gaps
While various schemes have been announced for micro, small and medium enterprises over the years, the most consequential reform has been the revised definition of MSMEs, which has brought thousands of enterprises into the purview for incentives and benefits, especially access to credit. The Budget for 2025-26 raised the investment and turnover limits considerably and opened up the credit guarantee cover with higher eligible amounts. Given current global uncertainties, MSMEs have been hard hit and deserve much higher support, both in terms of direct benefits and better operating and infrastructure environments.

Another welcome step was the announcement of a high-level committee on regulatory reforms, which has since identified a range of issues affecting ease of doing business and the MSME ecosystem. Progress on the decriminalisation of business laws under Jan Vishwas 2.0 is also a positive measure.

On the obverse side, recent Budgets have disappointed on many counts. The first is the continued low expenditure to GDP rate on education, skill development and healthcare, the building blocks of a strong and resilient industry for an India that is in a demographic sweet spot. Social sector spending has increasingly relied on direct benefit transfers, but the long-standing targets of 6% of GDP for education and 3% for healthcare remain distant, with no credible roadmap for achieving them.

Second, regional inequalities have not been adequately addressed. The gaps among states in key indicators such as per capita income, infrastructure development, manufacturing capabilities and export development are widening.

Third, the share of manufacturing in GDP has stagnated at around 17% for many years, well below the 25% target under Make in India. Several policies such as ease of doing business, development of industrial parks, enhancing connectivity and sectoral policies have been taken up sporadically, more in announcement than in action.

Budget 2025-26 rightly stressed a National Manufacturing Mission focusing on ease and cost of doing business, skilling, MSME, technology and quality, yet progress during the current financial year has been limited. Private sector research and development is another weak link, with policy emphasis skewed towards public research funds rather than tax incentives commonly used in innovation-rich countries.

Strategic Deficit
Fourth, exports and imports are not strategically balanced in the Budgets. The Government adopted a policy of raising import duties to protect Indian manufacturers starting 2017 and also started imposing quality control orders. This led to immense hardship for exporters seeking to import inputs for further value addition. Despite exports as a stated priority, Budget 2025-26 left out allocations for the interest equalisation and market access schemes. These were later included in an export package announced towards the end of the year, by which time steep US tariff hikes had already hurt exporters, especially MSMEs.

Fifth, the prolonged lack of progress on disinvestment and asset monetisation remains a concern, locking up funds and maintaining bureaucratic controls that slow down industry as a whole.

First-generation industrial incentives are no longer effective. The response to the Production Linked Incentive scheme has been muted across sectors, with the industry reluctant to commit fresh investments amid moderate domestic demand and global uncertainty. The Reserve Bank of India’s Order Books, Inventories and Capacity Utilisation Survey reveals a structural deficiency in capacity utilisation at around 75% since 2015-16, lower than the 80% required to incentivise capacity addition.

The upcoming Budget will therefore need to place greater emphasis on reviving private investment, boosting exports and sustaining government spending. Industrial growth will ultimately depend on a facilitative regulatory climate, faster approvals and processes, better industrial infrastructure, and easy access to funds.

Breaking the cycle of stagnant real wages, moderate demand, low-capacity utilisation and weak investment sentiment will need strategic policymaking that extends beyond the annual Budget, ensuring that India’s rapid GDP growth is reflected in the lives of citizens at large.