- Fiscal deficit
The centre has brought its fiscal deficit down from 9.2% of GDP in FY21 to 4.8% in FY25, and it’s aiming for 4.4% in FY26. At the same time, capital expenditure has steadily gone up. Between FY20 and FY25, the share of capital spending in total central expenditure rose from 12.5% to 22.6%, while effective capex climbed from 2.6% to 4% of GDP.
India looks like a rare large economy that’s cutting deficits, investing aggressively, and still promising a sub-4.5% fiscal deficit by FY26. Let’s dig deep
Fiscal deficit at ~3.2% of GDP in FY25 masks a worsening revenue balance. States moved from near balance in FY19 (-0.1% of GDP) to a 7x wider revenue deficit (-0.7%) by FY25; deterioration seen in 18 states.
- Rapid expansion of unconditional cash transfer (UCT) schemes is crowding out developmental spending. Aggregate UCT spending estimated at ₹1.7 lakh crore in FY26: number of states running such schemes up over 5x since FY23.
- Nearly half the states running UCT schemes are already in revenue deficit, implying incremental borrowing for development.
- Despite similar ratings, India’s 10-year yield trades above Indonesia’s, reflecting concerns over state finances.
- States increasingly rely on central support for growth-critical capex while expanding fiscally weak giveaways. 50-year interest free loan has scaled to ₹ 1.5 lakh cr. in fy25
Strong growth, low inflation, and stable macro indicators coexist with weakening sub-national fiscal discipline. How long can a fiscally disciplined Centre underwrite states that structurally spend more than they earn—without dragging down India’s growth trajectory?
- Infra/public capital expenditure
Capital expenditure up ~11.5% over FY26 revised estimates (and revenue expenditure growth lower), reinforcing continued reliance on public investment as a growth lever.
- Capital outlay raised to ~₹12.2 lakh crore, reinforcing continuity of the infrastructure cycle.
- States remain a key transmission channel for infrastructure build-out via transfers and capex-linked assistance.
This is a serious challenge seen from underspending in some large schemes in FY26 revised estimates (Jal Jeevan Mission / housing), which is a practical reminder that budgeted capex must be read alongside (i) pipeline readiness, (ii) tendering capacity, (iii) land/clearances, and (iv) contractor balance sheets.
The sheer number of initiatives raises feasibility concerns within a single fiscal year. Large projects need multi-year planning, sustained funding, and strong administrative and state-level coordination, while tax tweaks and targeted subsidies can be implemented quickly. Ultimately, outcomes hinge on prioritisation, phased execution, and effective monitoring—the budget sets direction, but delivery will determine success.
- Agriculture
- Agriculture was not a central “big-bang” theme in the Budget narrative, despite being a political and consumption-sensitive sector.
- The government has to find ways to raise farmer incomes without endlessly increasing MSPs or subsidies because that would eventually put pressure on public finances. Answer is High-value crops. These crops generate more value per hectare and per worker than staples like rice and wheat. That’s exactly why, alongside measures to improve animal husbandry and fisheries, the Budget places a clear emphasis on high-value agriculture.
- Stronger emphasis appears to be on allied activities (especially fisheries/livestock) rather than broad-based farm income interventions.
- Another initiative, Bharat-VISTAAR is a multilingual AI platform that integrates AgriStack data and ICAR expertise to deliver local, customised farm advice, improving productivity, decision-making and risk management.
- Reporting around a ₹1.63 lakh crore agriculture allocation frames the intent, but the policy question is whether the spend composition materially improves (i) market access and value addition, (ii) cost of cultivation, and (iii) risk protection.
- Medium-term farm productivity and climate resilience depend disproportionately on R&D, seed tech, extension, and agronomy. Allocation is reduced and this could weaken the quality of agri. growth even if nominal outlays rise. Research and productivity capacity-building appears constrained
- allocations and references to the rural employment guarantee scheme in the budget context, underscoring that social protection continues but within a tighter fiscal envelope.
Larger aggregate allocation headlines do not automatically translate into measurable income uplift without execution and price realisation.
- Financial Sector
The budget highlighted confidence in India’s financial system, citing stronger bank balance sheets, improved asset quality and higher profitability.
- A high-level committee on banking for Viksit Bharat will review the sector to support the next phase of growth while safeguarding stability and inclusion.
- Introduction of a market-making framework and permission for total return swaps – aimed at improving market liquidity, making the bond market a more viable and efficient alternative to bank loans for corporate fundraising. Subsidising municipal bond markets, including market-making frameworks and incentives for large bond issuances by cities. .
- Public sector NBFCs will be consolidated to improve efficiency, scale and credit delivery
- Income-tax slabs unchanged; expectations managed, not met.
- TDS on NRI property purchases can now be deposited using the buyer’s PAN instead of TAN, removing avoidable paperwork (process relief, not tax relief).
- Sharp hike in trading costs for active and speculative traders by hiking STT on options and futures by 50% and 150% respectively. Despite past STT hikes, collections have underperformed projections — reinforcing that higher transaction taxes may suppress volumes rather than boost revenue.
- Buyback tax arbitrage decisively closed – to be taxed purely as capital gains for all shareholders. Additional buyback tax imposed on promoters (22% corporate, 30% non-corporate) as timing decision rests with them ending promoter advantage over public shareholders
- Compliance flexibility with sharper scrutiny -Greater leeway to revise/update returns (capital gains, dividends, foreign income); Simultaneous tightening of foreign asset disclosure — transparency over tolerance.
- Targeted exemptions clarified – Motor accident compensation interest fully tax-exempt (no TDS). SGB capital-gains exemption applies only if held till maturity by original investors.
Shortcuts, tax arbitrage, speculation and opacity are being priced out — while long-term, compliant investing remains largely untouched.
- Manufacturing push (seven priority sectors)
Budget anchors growth strategy around scaling up manufacturing across seven sectors.
- Biopharma SHAKTI: ₹10,000 crore over 5 years to make India a global biopharma hub amid rising non-communicable diseases.
- Semiconductors – ISM 2.0: ₹40000 cr outlay Expands beyond fabs/design to creation of Indian IP and industry led R&D, skilling and training eco system.
- Electronics Components Manufacturing Scheme outlay raised from ₹22,919 crore to ₹40,000 crore after attracting 2× targeted investments — strongest capital-backed push in the speech.
- Rare Earth Corridors proposed in mineral-rich states (Odisha, Kerala, Andhra Pradesh, Tamil Nadu) spanning mining, processing, R&D and downstream manufacturing. This would help secure critical inputs for electronics, clean energy and advanced manufacturing.
- New scheme to support three Chemical Parks to reduce import dependence and strengthen supply chains feeding pharma, electronics, energy and infra.
- MSME capital support: ₹10,000 crore SME Growth Fund for equity support to high-potential MSMEs. ₹2,000 crore top-up to the Self-Reliant India Fund. To ease payment delays, central PSUs will be mandated to use the TReDS platform, supported by a credit guarantee for invoice discounting. Corporate Mitras will help MSMEs navigate regulatory requirements at lower cost.
- Orange economy Concept introduced covering music, films, art, design, performances and live entertainment. Back IICT, Mumbai to set up AVGC Content Creator Labs in 15,000 schools and 500 colleges. Creative industries contribute 0.5%–7%+ of GDP globally (UNCTAD). By 2030, industry expected to need ~2 million creative and tech professionals.
The Budget signals a deliberate shift from intent to execution—backing manufacturing depth, supply-chain security and MSME capital with real money, while quietly seeding the orange economy as a future jobs and growth lever beyond traditional industry.
- Technology, Data & Digital Services
- Data Centre Tax Holiday: A landmark tax holiday until 2047 is granted for data centres providing global cloud services. The policy has been received positively, as it provides unprecedented investment stability and is expected to trigger massive FDI from global hyperscalers, transforming India into a primary data storage and export hub.
- IT Services (Simplified Norms): A unified 15.5% safe harbour margin is introduced with the eligibility threshold raised to ₹2,000 crore. This is a major win for the IT industry. It significantly reduces the risk of transfer pricing litigation—a long-standing pain point—thereby improving the ease of doing business for a large number of mid-sized IT firms
- Tax holiday period is proposed to be extended to 20 consecutive years out of a block of 25 years all units in IFSC. Tax on eligible income of these units for non-tax holiday period shall be 15%.