‘Achieving Triveni Sangam of boosting consumption, capex and fiscal prudence’
The first full year budget of Modi 3.0, provides the right ingredients for laying the foundation to help propel India to the next leg of growth, aligning with the goal of “Viksit Bharat”. The Budget FY26 delivers on the expectations of Triveni Sangam by supporting middle class consumption, increasing capex through centre, state and PSU allocations even while continuing to walk on the path of fiscal prudence. The key takeaway from the Budget is the clear shift in focus from a mainly investment led growth to growth on the back of both middle-class consumption along with capex (largely through the public-private partnership model).
The Budget certainly delivers more than expectations in terms of the measures announced aimed at providing impetus to consumption by supporting the urban and middle-class demand. The extent of the measures announced can be gauged from the figure of income tax forgone for the same which works out to ₹1 lakh crore. This would, in turn, provide more disposable income in the hands of the consumer, thereby boosting consumption. Importantly, the Budget support comes at an opportune time when consumption, especially at the bottom of the pyramid and urban consumption were seeing muted trends even while there have been some signs of revival in rural demand.
The Budget continues to walk the path of fiscal prudence and consolidation even while it seeks to boost consumption. There have been no changes in fiscal priorities, with the fiscal deficit targeted at 4.4 per cent of GDP in FY26BE. From FY26-27 till FY31, the target is towards attaining a debt to GDP level of about 50 per cent (±1 per cent). Overall, this Budget reinforces government’s commitment to fiscal prudence. Further, from the perspective of fiscal maths, the assumptions on nominal GDP growth and tax revenue collections appear realistic for FY26.
Deregulation
Beyond the fiscal math, the deregulation/ease of doing businesses has been the other key theme of the Budget. The Budget has emphasized that there is a need to ease permissions, documentation, certifications and licences specifically for MSMEs. There is also a significant focus on simplifying the tax laws hence increasing tax compliance. Employment generation has also been another area of priority by supporting the MSME sectors, footwear and textiles. The policies announced are also aimed at providing continued fiscal support to start-ups. Overall, we believe that all of these proposals put together would likely result in the creating a virtuous circle of demand and growth.
While there is a lot of debate on the capital expenditure outlay in the budget, one must remember that the capital allocation stands at ₹11.21 lakh crore (3.1 per cent of GDP). It includes capital support to States through interest free long-term loans with an outlay of ₹1.50 lakh crore. Further, the budgeted capital outlay is almost 3.3 times of the outlay in FY20. In BE 2025-26, the allocation under grants-in-aid for creation of capital assets is projected at ₹4.27 lakh crore (or 1.2 per cent of GDP). Thus, the effective capital expenditure in FY26 is estimated at ₹15.48 lakh crore (or 4.3 per cent of GDP). The budget also proposes the setting up the National Manufacturing Mission to further Make in India with proposals aimed at boosting green tech manufacturing in PV Cells, electrolysers and grid scale battery.
Overall, the Budget FY26 more than delivers on expectations. Today’s Budget played a balancing act aimed at boosting near-term growth through gradual fiscal consolidation with focus on consumption and at the same time laid down the economic framework to boost India’s medium-term growth. These policy measures would go a long way in helping India seal its position as the fastest growing large economy of the world.
