After Budget 2026-27 was presented on a Sunday, government spokespersons, editorial writers, commentators and journalists used the word ‘cautious’ and the phrase ‘don’t rock the boat’ to describe the Budget. I suppose they followed an American colloquialism ‘If it ain’t broke, don’t fix it’.
Multiple challenges
The Economic Survey 2025-26 (ES) had identified the challenges facing the Indian economy. Among them are:
- The tariff war unleashed by President Trump. Although he announced that the tariff on Indian goods will be reduced from 50% to 18%, it appears that the reduction is conditional upon India ‘dropping’ the tariff on American goods to zero, removing non-tariff barriers, buying $500 billion of american goods, and other conditions that India may find difficult to fulfill.
- Inflows of foreign direct investment “remain below their potential”. Foreign portfolio investors are pulling out. Indian promoters, although cash-rich, are reluctant to invest. The consequence is that Gross Fixed Capital Formation (GFCF) is stuck at about 30% of GDP.
- The unsatisfactory nominal GDP growth: the methodology followed by the NSO and the doubts on the national accounts have cast a shadow on the real GDP growth rates. The nominal GDP is a better indicator. It has grown by 12%, 9.8% and 8% in the years 2023-24, 2024-25 and 2025-26 respectively. Growth is losing momentum.
- The grave unemployment situation. Youth unemployment rate was 15% in June 2025. Only 21.7% of the workforce are in regular, salaried employment. Lakhs of youth are unemployed. The numbers reveal a shift towards self-employment.
- No country has become a middle-income country without becoming a manufacturing power. India’s manufacturing sector has contributed barely 15-16% of GDP in the last 10 years. Make in India, PLI and other schemes have failed to create jobs
- Fiscal consolidation is agonisingly slow: the fiscal deficit will move from 4.4% in 2025-26 to 4.3 % in 2026-27 and the revenue deficit will remain at 1.5%. at this rate, it will take 12 years or more to reach the FRBM targets, and we will pay a heavy price.
- The tax gamble of 2025-26 has failed massively. The budget arithmetic was saved by the RBI which gave a generous dividend of approximately Rs 304,000 crore in 2025-26. In the previous two years, it had given Rs 210,874 crore and Rs 268,590 crore. The highest RBI dividend received during the UPA government (2004-2014) was Rs 52,679 crore in 2013-14.
FM ignored CEA
In Chapter 1 of the ES, the CEA advised “caution, but not pessimism”. That tone continued throughout the report. In another chapter he advocated a credible glide-path of fiscal consolidation. The only place in which the CEA advocated a bold approach is on urbanisation where he advised “stronger metropolitan governance, predictable enforcement, and a credible civic compact that aligns incentives between citizens and the state. Cities will also need to be empowered with better finances…”
The Finance Minister’s response to her principal adviser was non-intellectual and evasive. In her 85-minute speech, she did not comment on the state of the Indian economy or President Trump’s two-pronged assault on the world economy through tariffs and coercive transactional deals. Nor did she comment on the global churn or China’s economic expansion or any other matter that informed persons would have expected in the Budget speech. My charitable view is that the Finance Minister and the government do not care for the economic survey. The uncharitable view is they think we are inhabiting a planet that is not part of the solar system.
I was shocked that the Finance Minister did not think it necessary to spell out the government’s policies that will address concerns about slowing growth rate, poverty and growing inequality, stagnant investment, widespread unemployment, neglect of welfare, depreciation of the rupee, and the huge gaps between the demand and supply of infrastructure and essential services.
Failed accountant’s test
Even by common accounting standards, the Finance Minister’s record of financial management was poor. There were cruel expenditure cuts in the budget allocations in 2025-26 to ministries of Rural Development, Urban Development, Education, Health and many others. Under Mr Shivraj Singh Chouhan’s watch, agriculture and Rural Development suffered a cut of Rs 60,052 crore.
Jal Jeevan mission was allocated Rs 67,000 crore but in the revised estimate it was found that only Rs 17,000 crore had been spent. Capital expenditure fell from 3.2% of GDP in 2024-25 to 3.1% in 2025-26. Defence expenditure fell to a low of 1.6% of GDP (11.4% of total expenditure) and threatens to fall to 1.5% of GDP (11.1% of total expenditure) in 2026-27.
Knowledgeable experts have sharply criticised the Budget speech. Dr Surjit Bhalla ridiculed the self-congratulation about the ‘fourth largest economy’. Dr C Rangarajan called out the slow pace of fiscal consolidation. Dr Ashok Gulati deplored the neglect of large parts of the farm sector. Professor Rohit Lamba (Cornell University) mocked the Budget as fit for an economy in search of a plan.
The Finance Minister threw schemes, programmes, missions, institutes, initiatives, Funds, Committees, etc at her listeners. I counted at least 24. they will soon find out that no money was allocated for many of these announcements!
The Budget was an exercise in intellectual laziness.
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.