Incremental Ambition in an Age Demanding Structural Reset

Union Budget 2026–27 arrives at a moment when India’s economic challenges are no longer episodic disturbances but manifestations of deeper structural stress. In my recent article, “From Fiscal Arithmetic to Economic Statecraft: The Budget Must Move Beyond Fiscal Math to Economic Statecraft,” published in BasisPoint on January 22, 2026, I argued that India’s fiscal discourse remains trapped in a narrow accounting framework at a time when the economy demands strategic statecraft.

The challenge before the Budget was to address the deeper structural weaknesses that amplify global shocks, constrain competitiveness, and erode long-term state capacity. Global trade fragmentation, geopolitical risk, AI-driven technological disruption, climate volatility, weak human capital outcomes, and a fragile fiscal federal compact now define the economic landscape. The central question, therefore, is not whether the Budget is fiscally prudent or growth-oriented in a conventional sense, but whether it signals a transition to a new macroeconomic and institutional paradigm capable of sustaining resilience and competitiveness over the next decade.

Judged against this standard, the Budget occupies an uncomfortable middle ground.

It is neither a routine, status quo fiscal exercise nor the strategic inflexion point current conditions demand. Instead, it is best understood as a consolidation-and-extension Budget—coherent, administratively competent, and selectively ambitious, yet fundamentally incremental in its treatment of India’s most binding structural constraints.

Incremental Ambition
The Budget demonstrates awareness of global volatility.

References to disrupted supply chains, weaponised trade, and technological upheaval recur throughout the speech. Fiscal consolidation remains central, with a declining debt-to-GDP trajectory and a fiscal deficit firmly below 4.5% of GDP. These are important signals of discipline. However, macroeconomic resilience is treated largely as an outcome of prudence rather than as a public good requiring deliberate institutional design. There is little effort to strengthen automatic stabilisers, build counter-cyclical fiscal instruments, or enhance shock-responsive social spending. Stability continues to be managed through arithmetic rather than architecture.

The Budget goes further in its pursuit of calibrated economic autonomy. The emphasis on semiconductors, electronics components, rare earths, biopharma, capital goods, and energy security reflects a serious attempt to reduce strategic dependence on the US–China axis without retreating into autarky. Yet autonomy is pursued primarily through sectoral schemes and capital outlays. The deeper question—whether domestic capabilities are being embedded through pricing reform, regulatory predictability, and risk-sharing mechanisms—is left largely unaddressed. Autonomy built on subsidies rather than institutions risks remaining fragile.

This limitation is most evident in the treatment of competitiveness. The Budget assumes that competitiveness can be engineered through infrastructure expansion, logistics upgrades, and production-linked incentives. These measures matter, but they do not address core governance failures: distorted power tariffs, opaque fuel pricing, fragmented land markets, unpredictable raw-material policies, and a compliance regime marked by discretion. Export performance ultimately reflects state capacity, not incentive design. On this front, the Budget avoids the politically difficult reforms that would convert competitiveness from aspiration into outcome.

Missing Architecture
The quality of public expenditure and human capital formation receive attention at scale but limited attention in their design. The Budget announces a wide range of initiatives across health, education, skills development, tourism, and services. This reflects recognition that future employment will be services-led. Yet spending remains programme-heavy and input-driven. There is no decisive shift toward outcome-based budgeting, lifecycle costing, or institutional incentives that reward performance over utilisation. Education and health are acknowledged as priorities, but not yet treated as binding macroeconomic constraints.

The silence is more striking on social safety nets. Despite references to inclusion, the Budget does not seriously engage with the reality that over 90% of India’s workforce remains informal. The pandemic demonstrated that employment guarantees and income support act as macroeconomic stabilisers. Yet there is no attempt to strengthen rural employment guarantees, design credible urban employment programmes, or create portable protections for migrant and landless workers. In an economy exposed to climate and technological shocks, this omission weakens resilience.

Fiscal federalism remains another unresolved fault line. While the acceptance of the Finance Commission’s devolution ratio preserves continuity, it does not constitute reform. The Budget does not address the erosion of State fiscal space through cesses, surcharges, and off-budget financing, nor does it fill the institutional vacuum left by the abolition of the Planning Commission. States and cities are expected to deliver growth and climate transition without predictable fiscal autonomy or analytical support.

On innovation and R&D, the Budget signals intent but not transformation. AI, quantum technologies, and research missions are repeatedly invoked, yet public R&D remains fragmented and bureaucratic, with weak accountability for outcomes and inadequate governance of competition. The state continues to act primarily as a grant-giver rather than as an intelligent buyer and co-developer of technology.

The Budget comes closest to strategic realignment in its treatment of green development and capital recycling. Asset monetisation, REITs, infrastructure financing instruments, CCUS funding, and energy-transition measures point in the right direction. Yet circular finance is treated as a technique rather than embedded into fiscal strategy, pricing reform, or intergovernmental investment planning. Green development remains a sectoral priority, not the organising macroeconomic framework.

Taken together, the Budget represents competent management of an existing policy trajectory rather than a reconfiguration of the Indian economic state. It extends reforms and maintains discipline, but largely avoids the institutional reforms required in an era of permanent volatility. It is more than business as usual, yet significantly less than the strategic reset the moment demands.

The real test lies not in headline allocations, but in whether future Budgets confront the hard questions of pricing reform, expenditure quality, social protection, fiscal federalism, and innovation governance. Without this shift from fiscal arithmetic to economic statecraft, India will remain vulnerable—not merely to global shocks, but to its own unresolved structural constraints.