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When the finance minister Nirmala Sitharaman rose to present her ninth budget, expectations were high that taking advantage of the country’s stable macroeconomic fundamentals she would go for 

big-ticket reforms. The core inflation has come down; GDP is estimated to grow by 7.4% in 2025-26 – nearly one percentage point higher than the previous year, foreign direct investment has grown by over 12% in 2024-25 and total exports have grown by 4.3% during the first nine months of the current fiscal despite high tariffs imposed by the US, India’s biggest export market.

Sitharaman, however, chose to approach the broader economic template through various sectoral and issue-based measures, which taken together, aimed at pushing India’s growth over the medium term period. Given the geo-economic and geopolitical uncertainties this diffused approach is expected to be more effective than big bang reforms. Accordingly, FM avoided disruption in the current system and instead, took measures to boost the manufacturing sector along with various services sectors with specific provisions to help labour-intensive sector such as textiles and leather.

The Indian economy has done well in 2025-26 but there is a little room for complacency for the future, especially, in a period of global uncertainties. FM has not gone for big reforms but has paced a decisive bet on strengthening India’s manufacturing base, with a sharp focus on strategic sectors such as semiconductors, electronics, biopharma, rare earths, textiles, transportation, energy storage and capital goods to sustain growth momentum.

India's manufacturing sector has shown strong performance in recent months. The HSBC India Manufacturing PMI rose to 55.4 in January 2026 from 55.0 in December 2025. The momentum accelerated further in February 2026, reaching a four-month high of 57.5, driven by robust domestic demand, increased output, and rising new orders. 

To meet future demand in a tech-driven world, the government announced India Semiconductor Mission (ISM) 2.0 to scale up domestic production of semiconductor equipment and materials, develop full-stack Indian IP, strengthen supply chains, and drive industry-led research and skilling.

The Electronics Components Manufacturing Scheme has also been expanded, with its outlay nearly doubling to Rs 40,000 crore. The Budget introduces Biopharma SHAKTI, with an outlay of Rs 10,000 crore over five years, aimed at positioning India as a global biopharma manufacturing hub.

The initiative will support biologics and biosimilars production, establish new research institutes, upgrade existing ones, create over 1,000 accredited clinical trial sites, and strengthen regulatory capacity to meet global standards.

The Biopharma Shakti programme will be a key enabler for India’s journey from volume to value leadership, helping the country move from being a global supplier of quality medicines to becoming a global innovator.

Alongside the expansion of the national clinical trials network and strengthening of the CDSCO with specialised scientific review and globally aligned timelines, these initiatives will enhance India’s capacity to develop complex, high-value therapies

These were backed by targeted policy interventions and multi-year, sometimes even multi-decadal, investment push. All this was done while keeping fiscal discipline intact, with the fiscal deficit projected at 4.3% of GDP in FY27.

Fiscal deficit comes down

As promised in her last budget, Sitharaman has succeeded in keeping fiscal consolidation exercise on track despite one lakh crore rupees tax relief for the middle class in the last budget. In actual terms, however, the gross tax collections were much lower in 2025-26 – down from `42.70 lakh crore in the budget estimates to `40.77 lakh crore in the revised estimates.

And this needed expenditure compression to keep the fiscal deficit under control. In fact, the fiscal deficit equation in the revised estimates for 2025-26 was largely met by cutting expenditure on centrally sponsored schemes – from `10.49 lakh crore in the budget estimates to `8.45 lakh crore in the revised estimates.

Apparently, the fiscal deficit figure is the only operational target for fiscal consolidation. In the revised estimate for 2025-26, the government has fixed its fiscal deficit target to 4.4% of GDP, exactly what she estimated at the time of presenting the Budget. And now FM has projected a fiscal deficit at 4.3% of GDP for 2026-27.

The budget statement on fiscal policy says since

FY 2021-22, adoption of an operationally flexible fiscal consolidation path has served the country well. "India is now set to attain the goal outlined in the Budget for FY 2021-22 and reach fiscal deficit level below 4.5% of GDP in FY 2025-26," according to the document. Sitharaman seems to have done better.

It also said that barring any major macro-economic disruptive exogenous shocks, and while keeping in mind potential growth trends and emergent development needs, the Centre will try to keep fiscal deficit each year (from FY 2026-27 to FY 2030-31) such that govt's debt is on a declining path to attain a debt-to-GDP level of about 50% (plus/minus 1%) by March 31, 2031, which is the last year of the 16th Finance Commission cycle.

The Budget outlines its intent of reducing the central govt debt to GDP ratio to 50 plus-minuses one per cent by 2030-31 from 56.1% projected for 2025-26. According to analysts this would align with a fiscal deficit of close to 3-3.3% of GDP, and provides space for a capex target of close to 3-3.5% of GDP by 2030-31.

But to achieve the FRBM target India would require maintaining a steady GDP growth. The debt as defined in the FRBM act as percentage of GDP although has been declining over the years, it was estimated at far above the threshold at 54.7% in the 2026-27 Budget.                

There are a number of reasons from poor global economic growth to the negative impact of the high tariffs imposed by the US which may affect India’s future growth prospects. Within the domestic domain, however, the subdued demand growth is negatively impacting the growth multiplier. Multiple dynamics impact exports, consumption cycles, and income growth, pointing to a challenging outlook for 2026-27. One of the important reasons of concern for future growth is demand constraints in the economy. This is evident in the falling share of consumption in GDP. The share of private final consumption in GDP declined by two percentage points during the last five years from 58.3% in 2021-22 to 56.3% in the advance estimate for 2025-26.

Generally four factors; wealth effect, incomes, leverage, and fiscal transfers are considered as key drivers of consumption cycles. Over the past two decades, these drivers have influenced consumption across distinct phases, including periods of broad-based growth and K-shaped recovery.

All these factors have shown signs of weakness in recent years. Household income growth has slowed down, with rural wage growth remaining stagnant and organized sector wage growth decelerating. Consumption loans, which previously offset income sluggishness, have also slowed down in 2025-26.

High value agriculture

The good news from the consumer space, however, is that while urban demand is slowing, rural demand is holding up backed by a strong Kharif harvest in 2025 after achieving a record-breaking foodgrains production of 357.73 million tonnes in 2024-25 crop year — up 7.7% over the previous year.

NABARD’s November 2025 round of Rural Economic Conditions and Sentiments showed a revival in rural demand, rising incomes and improved household wellbeing over the past year following higher agricultural production.

The survey indicates a consumption boom driven by real purchasing power. About 80% of rural households consistently reported higher consumption over last year. Around 67.3% of monthly income is now spent on consumption, the highest share since the survey began, supported by GST reforms. About 42.7% of rural households experienced income growth. Future prospects also look good with the highest proportion of households at 75.9% expecting incomes to rise next year. In fact, many CEOs of consumer goods and FMCG companies admitted that the urban demand for everyday products had been distinct, the survey said.

Vindicating the farmers’ rising income narrative FM has emphasized on high value agriculture in her Budget speech. “To diversify farm outputs, increase productivity, enhance farmers’ incomes, and create new employment opportunities, we will support high value crops such as coconut, sandalwood, cocoa and cashew in our coastal areas” she has promised.

The Budget talked of prioritizing the agriculture sector, but the small increase in allocation does not support the claim The Budget 2026-27 prioritizes the sector with a total allocation of `1.40 lakh crore for the Ministry of Agriculture and Farmers' Welfare, a 2.19% increase over 2025-26.

In line with India’s digital policy the Budget has proposed the introduction of the multilingual AI-enabled ‘Bharat VISTAR’  platform for farm advisory and plans to generate unique digital IDs for 11 crore farmers. It has proposed dedicated programs for cashew, coconut, cocoa, sandalwood, and spices to diversify income. In addition, a massive fertilizer subsidy of over `1.70 lakh crore to support farmer input costs has been allocated in the Budget. These moves reflect a shift towards technology-led

farming, aiming to reduce reliance on traditional food grains and boost income through diversified, high-value agricultural products. 

FM keeps faith on infrastructure building

FM may have taken measures to boost the manufacturing sector but she has kept her faith on infrastructure building to drive growth and create jobs. In her budget speech Sitharaman has emphasized that to accelerate and sustain economic growth she would be delivering a powerful push to infrastructure,

An efficient infrastructure network serves to improve the effectiveness and competitiveness of the entire supply chain system by lowering transportation costs and simplifying operations. Investment made over the years in building and improving infrastructure has had a strong multiplier effect on the economy.

“During this past decade our Government has undertaken several initiatives for large-scale enhancement of public infrastructure including through new financing instruments such as Infrastructure Investment Trusts (InVITs) and Real Estate Investment Trusts (REITs) and institutions like NIIF and NABFID,” FM has claimed in the budget.        

That the government considers infrastructure building as a growth multiplier is evident from the sharp rise in capital expenditure over the years. In six years, between the 2020-21 and 2026-27 Budget, the government’s capital expenditure has gone up by nearly three times from ` 4.26 lakh crore in 2020-21 to `12.21 lakh crore in this year’s budget.

Sitharaman has announced a host of measures aimed at driving infrastructure development and innovation. And while she has reiterated the role of the private sector in infrastructure building, she has urged for states’ active participation in infrastructure development too. In her 2025-26 Budget she had announced that `1.5 lakh crore would be provided in the form of 50-year interest-free loans to states for infrastructure projects.

Since the government’s investment alone would not be sufficient to meet the nation’s increasing investment needs on infrastructure FM has announced “to strengthen the confidence of private developers regarding risks during infrastructure development and construction phase” FM has proposed to set up an Infrastructure Risk Guarantee Fund to provide prudently calibrated partial credit guarantees to lenders.

The Budget 2026–27 announced against the backdrop of heightened geopolitical tensions, inconclusive tariff negotiations with the US, carried expectations of reinforcing India’s global standing–especially in the light of recently concluded Foreign Trade Agreements with the EU and some other countries. The Budget continues to advance India’s long-term strategic narrative: strengthening manufacturing as the core engine of growth while simultaneously expanding the country’s capabilities in services and digital trade.