Introduction
The budgetary highlights for 2025-26 and 2026-27
indicate a tightening fiscal policy aimed at reducing the fiscal deficit from
4.4% to 4.3% of GDP and lowering the debt-to-GDP ratio from 56.1% to 55.6%.
Total expenditure shows controlled growth, with capital expenditure receiving a
continued push, while the Education and Health Ministries see higher budgetary
allocations. According to budgetary highlights for 2025-26 Revised Estimates and
2026-27 Budget Estimates, the government plans fiscal consolidation by
targeting a reduction in the fiscal deficit and debt-to-GDP ratio while
maintaining increased total and capital expenditure. Allocations for the
Education and Health Ministries are also projected to increase.
Presented by Finance Minister Nirmala Sitharaman on
February 1, 2026, the Union Budget 2026-27 (FY27) arrives at a critical
juncture of global uncertainty and India’s 'Viksit Bharat 2047' vision. Facing
pressure from persistent rupee depreciation (staying above 90-mark) and the
need to curb inflationary pressures (2% retail inflation target in FY26), the
budget is fundamentally non-expansionary. It shifts the focus from
government-led spending to private sector investment, prioritizing fiscal
consolidation (4.3% deficit target) and debt management (aiming for ~50%
debt-to-GDP by 2031).
1. The Core Context: Inflation, Depreciation, and Debt
Worries
The 2026 Budget was drafted under the shadow of
significant external shocks and internal fiscal constraints:
Inflationary Pressures: While headline inflation
moderated, the budget recognizes the need to maintain a "tight"
fiscal policy to prevent resurgence.
Depreciation & Capital Outflow: The rupee faced
depreciation (4.9% decline as of Jan 2026), partly due to net portfolio
outflows, requiring policy stability to restore investor confidence.
Fiscal Deficit & Debt: The government met its
promise of reducing the deficit below 4.5% in FY26, and in FY27, the target is
tightened to 4.3% of GDP. The debt-to-GDP ratio is projected to decline to
55.6% in FY27 from 56.1% in RE 2025-26, signaling a commitment to long-term
stability rather than short-term stimulus.
2. A "Non-Expansionary" Stance: Numbers and
Analysis
Contrary to typical pre-election or popular budgets,
Budget 2026 is cautious.
Total Expenditure: Estimated at ₹53.5 lakh crore,
growing at a moderated pace to avoid overheating the economy.
Tax Structure: The new Income Tax Act, 2025 comes into
effect, encouraging compliance rather than reducing rates, with minimal changes
to personal income tax slabs.
Precedent: This follows the trend of "fiscally
responsible" budgets initiated in 2021-22, focusing on quality of
expenditure (capex) rather than quantity (subsidy).
Example of Control: Revenue expenditure and non-essential
spending are tightly controlled, with subsidies rationalized to keep the
deficit in check.
3. Crowding In Private Sector Investment
With public debt worries, the government’s mantra is
to "crowd in" private investment through policy support, infrastructure,
and de-risking:
Infrastructure Risk Guarantee Fund: Introduced to
reduce risks for private developers, especially in the construction phase.
Infrastructure Spending (Capex): Public capex
continues to grow (to ₹12.2 lakh crore, or ~3.1% of GDP), but it is focused on
catalyzing larger private participation.
Manufacturing Focus (ISM 2.0): India Semiconductor
Mission 2.0 launched, with a ₹40,000 crore outlay for electronic components to
boost private, high-tech manufacturing.
Ease of Doing Business: Introduction of a single,
interconnected digital window for cargo clearance, and a "Corporate
Mitras" program to help MSMEs with compliance.
4. Expenditure on Education, Skills, and Health
The budget prioritizes human capital, but with a focus
on efficiency and digital integration.
Education: Total allocation for the Ministry of
Education rose to ₹1.39 lakh crore for 2026-27.
Key Focus: The budget signals a shift from mere
outlays to outcomes, focusing on implementing the National Education Policy,
with a focus on five new university townships and AVGC (Animation, Visual
Effects, Gaming, and Comics) labs in schools.
Skills & Employment: A major focus on upskilling,
with the Skill India program receiving a dedicated push to enhance
employability. A new 12-week training course for 10,000 tourist guides is a key
example.
Health: The Ministry of Health and Family Welfare was
allocated ₹1.06 lakh crore, a nearly 10% rise over the Revised Estimates of FY
2025-26.
Key Focus: Setting up a new NIMHANS-2 and upgrading
national mental health institutes in Ranchi and Tezpur.
Conclusion
The Union Budget 2026-27 is a pragmatic,
non-expansionary, and stability-focused document. It successfully balances the
urgent need for fiscal consolidation and inflation control with the requirement
for long-term growth through capital expenditure. By lowering the fiscal
deficit to 4.3% and targeting a lower debt-to-GDP ratio, it aims to create a
stable environment for the private sector to lead the next phase of India’s
economic growth, while making targeted, high-efficiency investments in
education, health, and skill development to enhance long-term productivity.
