India faced global headwinds in 2025 but belied fears that America’s 50% tariffs would hurt its economy. The resilience of the Indian economy had a lot to do with the government’s reformist measures. As Prime Minister Narendra Modi said recently, “2025 will be remembered as a year when India treated reforms as a continuous national mission.” Budget 2026-27 can give a fillip to the mission.

India needs to strengthen the domestic levers of growth. This can be done by prioritising growth-enhancing productive capital expenditure and social sector spending, while maintaining the current fiscal consolidation glide path and keeping debt risks contained.

Continue the focus on defence

First, the government should continue the focus on defence, with higher expenditure on the capex. The share of capital outlay in defence should be enhanced to 30% from the budgetary estimate for 2025-26 of 26.4%. The budgetary allocation for the Defence Research and Development Organisation should also be increased by at least ₹10,000 crore. Defence industrial corridors in Uttar Pradesh and Tamil Nadu have made strides in promoting defence indigenisation and raising defence production. The government should consider establishing an eastern India defence industrial corridor.

Second, private enterprises have played a key role in augmenting defence exports in recent times, contributing nearly 65% of total defence exports in 2024-25. There can be a further boost by setting up a defence export promotion council for enhanced coordination with armed services, their foreign directorates, defence public sector undertakings, private manufacturers, the Ministry of External Affairs, Indian embassies, the Ministry of Defence, and communicate with foreign governments and buyers. This will also help achieve the target of defence exports set at ₹50,000 crore by 2028-29.

Third, a transition toward clean energy, advanced manufacturing, electric mobility, semiconductors and strategic technologies is driving a demand for critical minerals. The National Critical Mineral Mission (NCMM), approved in early 2025 provides a strong strategic foundation to secure these materials. This can be supplemented by a dedicated critical minerals tailings recovery programme under the NCMM, with the purpose of treating tailings recovery. The government should also consider offering dedicated financing for this.

Fourth, exports need a significant policy thrust in the current global environment. The present budgetary allocation for the Remission of Duties and Taxes on Exported Products Scheme, at around ₹18,233 crore needs to be raised significantly to make the exports more competitive.

Fifth, India has emerged as the world’s leading hub for Global Capability Centres, but its transfer pricing (TP) framework has yet to evolve. The government may consider issuing clear guidance on acceptable TP models for different categories.

Sixth, to accelerate drone adoption, global competitiveness, and exports, the government should consider catalysing scale through targeted financial support, including enhancing the production linked incentive outlay from ₹120 crore to ₹1,000 crore and setting up a ₹1,000 crore drone research and development fund.

Finance credit and tax disputes

Seventh, deepening the corporate bond markets is critical for diversification of finance credit beyond the banking system. The government could consider lowering the qualifying borrowing threshold and include listed and unlisted corporates to widen the issuer base and stimulate bond supply, encourage large corporations to diversify borrowings through market issuances, increase investment caps for insurance companies beyond the current 25% limit and revise the ‘Approved Investment’ threshold from AA to AA-, enabling prudent allocation into high-quality but lower-rated issuers. It could also permit provident funds to invest in non-convertible debentures issued by infrastructure investment trusts and real estate investment trusts, enabling long-term capital to support infrastructure aggregation vehicles.

Eighth, measures to address disputes pendency need to be prioritised. The first appellate level in direct tax disputes, the office of the Commissioner of Income Tax (Appeals) or CIT(A), is facing severe pendency. There is a need to prioritise high-pitched assessments, cases with complete submissions, cases covered by jurisdictional High Court or Supreme Court rulings, appeals older than five years, and matters that are chronologically the oldest. The need is a dual-track disposal system: a fast-track for simple or low-value matters and a detailed track for complex or high-value matters. Also, around 40% vacancies at the CIT(A) level need to be filled.

Ninth, newly incorporated companies (even for new companies formed by established Authorised Economic Operator or AEO-accredited groups) are ineligible for certification by the AEO. Removing this restriction for AEO-accredited groups will help enhance trade efficiency and facilitate greater trade.

Tenth, the reforms related to customs tariffs introduced in the last Budget must continue. Further reduction in the customs tariffs slabs can help streamline the duty structure, address the issue of inverted duties and benefit trade. Import duties should be calibrated across the value chain to support domestic manufacturing competitiveness and address the inverted duties.

Ensure competitiveness

Budget 2026-27 must focus on sustaining India’s growth momentum by deepening competitiveness across sectors and strengthening the domestic engines of expansion. By combining fiscal prudence with unlocking growth potential across industries, ensuring policy certainty and addressing structural bottlenecks, the Budget can crowd in private investment and enhance India’s global competitiveness.

Jyoti Vij is Director General, Federation of Indian Chambers of Commerce & Industry (FICCI)

Published – January 17, 2026 12:08 am IST

New Delhi:

With the Union Budget for FY26 scheduled to be presented on February 1, 2025, a report by Goldman Sachs underlined two key concerns for policymakers, the pace of fiscal consolidation and the government’s spending priorities.

The report highlighted that the upcoming budget will be crucial for balancing growth and fiscal discipline as India stands out for its high levels of public debt and fiscal deficit as compared with other emerging markets.

Goldman Sachs noted that the government is likely to keep the fiscal consolidation path intact, driven by the need to manage high public debt-to-GDP ratios.

However, the report cautioned that this fiscal tightening could act as a drag on economic growth in the upcoming fiscal year.

The report also highlighted a slowdown in public capital expenditure (capex). It mentioned that the fastest growth phase in public capex is now behind us, with future capex growth expected to align with or fall below nominal GDP growth rates. Welfare spending, too, is unlikely to see significant increases, although pre-pandemic trends in such spending are expected to continue.

The report noted that India is currently experiencing a cyclical growth slowdown, the report said, primarily due to fiscal tightening and slower credit growth as a result of the Reserve Bank of India’s macro-prudential measures to control consumer loans.

The central government’s fiscal deficit is expected to be targeted at between 4.4-4.6 per cent of GDP for FY26, down from the target of 4.9 per cent for FY25.

The reduction reflects the government’s focus on fiscal consolidation amid elevated public debt levels.

It said, “We think elevated public debt-to-GDP is likely to keep the fiscal consolidation path intact, and we expect the government to target fiscal deficit at 4.4 – 4.6 per cent of GDP in FY26 (from 4.9 per cent of GDP in FY25)”.

In the ongoing fiscal year FY25, robust tax collections, particularly from direct taxes, have provided the government some leeway to increase current expenditures. However, capital expenditure has remained subdued.

The budget is also likely to make an overarching statement about the long-term economic policy of the government towards 2047. The focus will be on job creation through labour-intensive manufacturing, credit for MSMEs, promoting rural housing programs, and sustained focus on the domestic food supply chain and inventory management to control price volatility.

The budget is also likely to lay out a roadmap for public debt sustainability, and financing India’s energy security vs. transition needs.

The expenditure on rural, welfare, transfer schemes and subsidies may go to the pre-pandemic trends (3.0 per cent of GDP in FY26). Given the reduced majority of the Central government, there might be some reallocation in expenditure towards rural transfers and welfare spending.

India’s Finance Minister Nirmala Sitharaman holds up a folder with the Government of India’s logo as she leaves her office to present the federal budget in the parliament, before the nation’s general election, in New Delhi, India, February 1, 2024.
| Photo Credit: REUTERS

The government under Prime Minister Narendra Modi should focus on adherence to fiscal prudence and continue on the fiscal consolidation path, suggested SBI Research ahead of the much-awaited full Budget for 2024-25 to be tabled on July 23 – the first Budget under Modi 3.0.

What is fiscal deficit?

The difference between total revenue and total expenditure of the government is termed as fiscal deficit. It is an indication of the total borrowings that may be needed by the government.

SBI Research suggested that the Centre should target a fiscal deficit of 4.9%, but it must not obsess too much over the fiscal stance. The Government intends to bring the fiscal deficit below 4.5% of GDP by the financial year 2025-26.

In the Interim Budget earlier this year, the Government has targeted a fiscal deficit of 5.1% of GDP for 2024-25. However, SBI Research believes that the Government may budget a fiscal deficit of less than “5% — may be 4.9% — for 2024-25” due to stellar growth in GST revenues and higher dividends from PSUs and RBI.

State borrowings

As the budgeted fiscal deficit gets lowered, the gross market borrowing of the government will also reduce to around ₹13.5 lakh crore in FY25 compared to ₹14.1 lakh crore in the interim budget and net market borrowing to ₹11.1 lakh crore against ₹11.8 lakh crore earlier, the report, authored and led by Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, said. “This along with India’s inclusion in Global Bond indices will keep the yield curve movements anchored,” it added.

In 2023-24, the Government pegged the fiscal deficit target for FY2023-24 at 5.9% of gross domestic product (GDP). Later, it was downwardly revised to 5.8%.

The interim budget, tabled on February 1, took care of the financial needs of the intervening period until a government was formed after the Lok Sabha polls, after which a full budget was supposed to be presented by the new government in July.

FM Sitharaman to break record with sixth budget presentation

With this upcoming Budget Presentation,surpassed the record set by former Prime Minister Morarji Desai, who as finance minister, presented five annual budgets and one interim budget between 1959 and 1964.

Mrs. Sitharaman’s upcoming Budget speech would be her sixth.The government on July 6 announced the dates of the Budget session of Parliament which will start on July 22 and conclude on August 12.

In its latest monetary policy review earlier this month, the Reserve Bank of India (RBI) has projected a 7.2% GDP growth for 2024-25 as opposed to its earlier estimate of 7%, with retail inflation trending down to 4.5% from 5.4% averaged last year. 
| Photo Credit: Getty Images/iStockphoto

The story so far: The National Statistical Office (NSO) has estimated that India’s Gross Domestic Product (GDP) grew 8.2% in 2023-24, outperforming all economic forecasters’ projections. The NSO number even surpassed its own advance estimates that had indicated a 7.6% uptick in GDP last year, imputing a 5.9% rise in the January to March 2024 quarter from 8.4% in the third quarter. However, the fourth quarter is now reckoned to have clocked 7.8% growth, a tad slower than an upgraded 8.6% rise in the previous three months. Private consumption, a key metric that the revival of industrial investments hinges on, remained weak but was slightly better than in the first half of the year.

What are the growth prospects for this year?

In its latest monetary policy review earlier this month, the Reserve Bank of India (RBI) has projected a 7.2% GDP growth for 2024-25 as opposed to its earlier estimate of 7%, with retail inflation trending down to 4.5% from 5.4% averaged last year. Initial indicators for the first two months of this year suggest a sedate start. Industrial output growth slowed to a three-month low of 5% in April, as per data released on June 12. Goods and Services Tax (GST) collections, a proxy for consumption, surged to a fresh high of over ₹2 lakh crore in April, thanks to year-end compliances.

Also read | Coalition crutches could cramp reform chase, say Moody’s, Fitch

While collections in May, based on transactions concluded in April, were healthy too, the growth rate slipped to just under 10%, the lowest since July 2021. But some of this slack could be spurred by the heat waves that have hit several parts of the country this summer, economists reckon. A projected above-normal monsoon is expected to help farm output rebound and perk up the rural economy. “We expect GDP growth for 2024-25 to be around 7.3%-7.4%, with the base effect pulling down the growth,” said Bank of Baroda chief economist Madan Sabnavis. Rating agency CRISIL’s estimate is a little lower than the RBI forecast at 6.8%, said its chief economist Dharmakirti Joshi.

Would a coalition govt. affect the economy’s management and reform momentum?

Following the Lok Sabha election verdict, Prime Minister Narendra Modi has returned to office for a third term as the head of a coalition government this time. There is a broad expectation of continuity in government policy, with the Prime Minister retaining top ministers with their portfolios unchanged, including Nirmala Sitharaman and Piyush Goyal at the helm of key economic ministries of finance, and commerce and industry, respectively. “We expect India’s strong medium-term growth outlook to remain intact, underpinned by the government capex drive and improved corporate and bank balance sheets. But upsides to medium-term growth prospects are likely to be more modest if reforms prove more challenging to advance,” said Fitch Ratings director Jeremy Zook.

While “broad policy continuity” is expected in areas such as the thrust on public capex to spur the economy and gradual fiscal consolidation, a BJP-led government that needs “to rely more heavily on its coalition partners” could find it tougher to push contentious reforms, particularly around land and labour, recently flagged as the party’s priorities, he noted. Moody’s Ratings was not as sanguine about fiscal management prospects as Fitch. The NDA’s “relatively slim margin of victory as well as the BJP’s loss of its outright majority in Parliament” may delay more far-reaching economic and fiscal reforms that could impede progress on fiscal consolidation, it said in a note. Moreover, it has cautioned that the near-term economic momentum masks structural weaknesses that pose risks to long-term potential growth, such as “high levels of youth unemployment”, “weakness in productivity growth” in India’s large farm sector that still accounts for 40% of all employment, and the decline in inward foreign direct investment (FDI) flows in each of the past three years.

What should one look for in the full-year Union Budget to be presented next month?

Taking charge of the Finance and Corporate Affairs Ministry this Wednesday, Ms. Sitharaman has said the reforms drive initiated after 2014 with an eye on bolstering India’s macroeconomic stability and growth, shall continue. The ministry will kick off Budget consultations with industry and other stakeholders in the coming week. While Ms. Sitharaman signalled that ‘ease of living’ for citizens will be a key pursuit for the government, industry expects the Budget to address ongoing policy challenges such as reining in inflation, spurring consumption and investments, and untangling knotty taxation issues such as the recently introduced 45-day payment deadline mandate for micro, small and medium enterprises that has inadvertently ended up hurting them.

Also read | NSSO survey finds COVID-19’s second wave hit informal economy hard

With the GST Council expected to meet next week, the Budget may also indicate the Centre’s plans to pursue rationalisation and reforms of the indirect tax regime that completes seven years on July 1. Some elements of the 100-day agenda items drawn up by ministries should also find space in the Budget, along with more concrete details of initiatives announced in the interim Budget presented before the polls. Ms. Sitharaman, who has recently voiced the need for Indian manufacturing to become more sophisticated and be part of global value chains, may also unveil some steps to catalyse this transition, including a reduction in some of India’s high import tariffs. While BJP allies like the Telugu Desam Party (TDP) and the Janata Dal (United) will, of course, expect some measures, or a package, to meet their aspirations for Andhra Pradesh and Bihar, respectively, at a broader level, this administration’s first Budget is expected to outline its agenda for this tenure and offer glimpses of the blueprint to make India a developed nation by 2047 that the Niti Aayog has been drawing up. The last few decades of India’s economic reforms story show that coalitions have also been effective in driving critical and contentious changes, such as the privatisation drive kicked off by the Atal Bihari Vajpayee government. This Budget could reveal if this coalition-dependent government has a fresh and possibly more consensual approach in mind to deliver on India’s reform agenda.