Opinion Budget 2026 was short and boring. That’s a good beginning
As the CEA noted in last year’s Economic Survey, boosting India’s manufacturing needs the government to get out of the way, not get in the way with schemes. A short, boring budget is a good beginning for the government to “get out of the way”
Importantly, technological advancements will continue to engender job displacements and disruptions No rhetoric of grand schemes, noisy thumping of desks and not even the customary Thirukkural quote. Kudos to Finance Minister Nirmala Sitharaman for the most boring Budget presentation in recent times. A Budget must be a dreary account of government finances. Broadly, the government collects most of its money through taxes from corporates (corporate tax), salaried class (income tax) and “aam aadmi” (GST, excise, etc).
The “GST Bachat” of September 2025 drilled a Rs 1.3 lakh crore hole in the government’s 2026 tax kitty vis-à-vis estimates. For context, this is roughly equivalent to the country’s education expenditure. With the GST rate cuts here to stay, no room to raise income taxes on the salaried class and corporate tax collections dropping to less than a third of total taxes after the 2019 tax cut, the FM was caught in a quandary of how to find new avenues to plug the hole. She seems to have picked on excise duties with an estimated 16 per cent increase next year. Curiously, the government has budgeted a 100 per cent increase in basic duties levied on petroleum products and sin goods. Coincidentally (or not), US President Donald Trump has said that India has agreed to buy cheap Venezuelan oil. Does this mean the government expects to import cheaper oil and levy huge excise duties on it without passing on the benefit to the people?
By choosing to raise transaction taxes on speculative stock market activity and not catering to the shrill demand for long-term capital gains tax exemption for investors, the FM has made it clear that the government’s attention is on the real economy, not the financial one. The stock market showed its disappointment immediately, but the government is right not to be cowed.
On the expenditure side, the government sought to quell the Opposition criticism on MGNREGA with a massive and surprising increase in allocation for VB-G RAM G. Predictably, there is a material increase in defence expenditure just as all nations are raising their defence budgets in an increasingly muddied world order. If there is one consistent trend in the Narendra Modi government’s budgets versus others, it is the emphasis on capital expenditure, which has risen steadily from 14 per cent of total expenditure in 2014 to 23 per cent in this Budget. Overall, the government has budgeted to spend 20 per cent more than its tax collections, in line with previous Budget trends.
With a consistent pattern of spending more than earning over several decades, the Government of India has accumulated significant debt. Starting this year, the emphasis for fiscal discipline shifts from just annual deficits to overall accumulated debt in proportion to GDP. Though debt-to-GDP is a flawed measure since it compares consolidated debt (stock) with annual GDP (flow), it is a global standard. The Union government’s debt-to-GDP is at 56.1 per cent, which the FM promised to reduce to 55.6 per cent next year with a target of 50 per cent by 2031.
But India’s real debt problem is in its states’ finances. States’ debt levels have been rising rapidly over the last decade, driven by reckless populism. Even once well-managed states like Tamil Nadu and Punjab have experienced a near tenfold increase in total debt in the last 15 years. States’ total debt-to-GDP is now 28 per cent, up from 22 per cent in 2014, and continues to rise despite the Union government’s goal to reduce its debt-GDP ratio. This is a serious faultline in the economy. Ratings agencies and global investors evaluate India’s debt-to-GDP on a combined basis of Union and states, and so states’ budgets are as important to evaluate as the Union’s, if not more so.
The FM, by waxing eloquent on a “new focus” on manufacturing, may have unwittingly admitted to the enormous failure of “Make in India”. Manufacturing’s share of the economy (GVA) was 17 per cent when Modi launched “Make in India” with much fanfare in 2014, with a specific target of doubling its share. Instead, it has fallen to 13 per cent, and the FM sought to renew this mission in her Budget speech with listless announcements. As the CEA noted in last year’s Economic Survey, boosting India’s manufacturing needs the government to get out of the way, not get in the way with schemes. A short, boring Budget is a good beginning for the government to “get out of the way”.
The writer is chairman, All India Professionals’ Congress & Data Analytics of the Congress party
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