By Rashesh Shah
The Union Budget FY26 is a measured, pragmatic approach towards keeping fiscal discipline at the core, while nudging growth forward. It reassures global investors, keeps India’s debt under check, and ensures financial stability—but the real question will be about how effectively it can stimulate demand and investment, help India reach 8% real GDP growth, and 11-12% nominal GDP growth?
One of the major highlights is the new income tax changes, which raise the income tax exemption limit to Rs 12 lakh, as well as the simplification of the Income Tax code. This will inject vitality into urban consumption—a critical lever for demand revival. Coupled with targeted subsidies, these measures could spur enhanced disposable income and, in turn, encourage spending in housing, education, and retail.
A significant reform is raising the FDI limit to 100% in the insurance sector, which will deepen financial penetration and attract foreign capital. While domestic banks face capital constraints, this reform positions India as a magnet for strategic investors, aligning with the ‘Insurance for All by 2047’ vision.
MSMEs & manufacturing
MSMEs are the backbone of India’s economy—contributing 46% to exports and employing over 20 crore people. The increase in investment and turnover limits for MSME classification, along with the rise in credit guarantee cover from Rs 5 crore to Rs 10 crore for MSMEs, and from Rs 10 crore to Rs 20 crore for startups, will ease liquidity constraints and boost entrepreneurship. Given that MSMEs account for 36% of manufacturing output, this will support India’s positioning as a global manufacturing hub.
The National Manufacturing Mission and the rationalisation of customs tariffs further support ‘Make in India’ by encouraging local production, increasing exports, and reducing import dependency. These steps can push India closer to self-reliance in critical industries.
Growth & capex
I hope the government has a plan to front-load capex in the first half of the year. The Budget allocates Rs 11.21 lakh crore towards capital expenditure, marking a 0.9% increase from the previous year’s budgetary allocation.
Category I and II Alternative Investment Funds (AIFs) investing in infrastructure now have certainty of taxation on gains from securities, encouraging more private capital participation. Private investment depends on demand picking up—capacity utilisation is still at 74-75%, and until it crosses 80%, private capex may remain slow. This makes public sector spending crucial, at least in the short term. The Rs 1.5 lakh crore in 50-year interest-free loans to states is a welcome step for infrastructure expansion, as is the extension of India Infrastructure Project Development Fund (IIPDF) for PPPs.
Execution is what will matter. The second half of the year must see a clear shift from public to private participation if the Budget’s goals are to be met.
Fiscal consolidation
The fiscal deficit is projected at 4.8% of GDP for FY25, revised downward from 4.9%, signalling the government’s commitment to debt reduction. The FY26 deficit target is set at 4.4%, reflecting a structured approach towards macroeconomic stability. The cut in fiscal deficit will boost foreign investors’ confidence in Indian government finances and improve chances of a sovereign rating upgrade.
What lies ahead?
This Budget prioritises stability over bold moves. It sets a solid foundation by attracting foreign capital, supporting MSMEs, and sustaining infrastructure growth. But reviving animal spirits in private investment remains the missing piece.
The RBI’s role will be important in complementing the Budget’s objectives. Monetary support will play a key role in driving growth.
Positively, reforms for ease of doing business and a light-touch regulatory framework are expected to encourage private investments. Yet, the absence of aggressive capex allocations or a clarion call for 7-8% GDP growth risks dampening ‘animal spirits’. Execution—swift infrastructure rollout, seamless FDI inflows, and RBI support—will determine whether India transitions from cautious calculus to sustained resurgence.
The author is chairman, Edelweiss Group
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