Manish Tewari | The Profound Challenges The Budget Ignored Fully

The Union Budget for 2026-27 arrives as a testament to an economy running on fumes. It is the budget of an era of diminished expectations, where the nominal GDP growth, the true lifeblood of government revenue and private sector pricing power, has reduced from 14 per cent and 20 per cent during 2004-05 and 2008-09, respectively, to a pedestrian eight per cent during 2026-27. This precipitous decline is not a cyclical trough but a structural plateau. The Budget’s response to this is not a bold corrective but a weary accommodation to this slower, humbler reality.

Beneath the veneer of moderate fiscal consolidation, where the deficit is projected at 4.3 per cent of GDP, lies an alarming and unsustainable reality. The government’s total liabilities, which stood at Rs 56.51 lakh crore in 2013-14, are projected to balloon to Rs 214.8 lakh crore by 2026-27. Servicing this mountain requires interest payments of Rs 14.04 lakh crore (9.7 per cent increase from the last Budget), consuming 20 paise of every rupee spent. To contextualise this calamity, the fiscal deficit itself is projected at approximately Rs 17 lakh crore. This means a colossal portion of our fresh borrowing is not financing development, but is merely being recycled to service past debts and crowd out private investments in search of capital from the market.

The government’s celebrated pivot from revenue expenditure (down from 81 per cent of total outlay in 2020-21 to 72 pc) towards capital expenditure (up to 23 pc) is another positive narrative on paper that collapses under the weight of this interest burden. This capex push, reaching Rs 12.2 lakh crore, was ostensibly designed to crowd in private investment, a strategy that has failed.

Private corporate investment remains moribund despite generous corporate tax cuts, production-linked incentive (PLI) schemes, and GST reductions aimed at spurring consumption. The reason is that Private Final Consumption Expenditure has stagnated, actually falling from 57.1 per cent of GDP in 2013-14 to 56.3 per cent in 2025-26. With household budgets squeezed by high inflation and low wage growth, and unemployment curiously highest among the educated youth, the demand signal for private sector capex never materialised. The government’s supply-side bet was placed on a demand base that simply did not exist.

This fundamental demand weakness is the toxin coursing through the budget’s veins, manifesting in expenditure cuts dressed as fiscal prudence. The government met its current year’s deficit target of 4.4 pc not through revenue outperformance but through a draconian suppression of spending. Tax buoyancy has plummeted to a worrying 0.6, against an assumption of 1.1, meaning revenue grows at only 60 per cent the rate of nominal GDP. Gross tax revenue growth assumed at 13 per cent came in at a mere three per cent; income tax growth projected at 17 pc limped in at six per cent.

This fiscal straitjacket directly manifests in the government’s retreat from critical social and economic expenditures. The outlay for the Jal Jeevan Mission was revised down by over 70 per cent (from Rs 67,000 crore to Rs 17,000 crore); PM Awas Yojana (Urban) by nearly two-thirds; and the Urban Challenge Fund by 90 per cent. The budget for labour, employment and skill development was more than halved mid-year, plummeting from Rs 32,496 crore to Rs 12,759 crore, a devastating statistic for a nation in the throes of jobless growth.

The proposed restorations for next year are a cynical, confidence-eroding pantomime, creating a Potemkin village of allocations that bear no relation to actual expenditure. This cycle reveals a government skilled at announcement but bankrupt in execution.

Faced with the failure of its consumption-boosting gambits, the budget for 2026-27 retreats into a supply-side shell, its ambitions scaled down to pointed interventions.

Its central, silent gamble is an unprecedented, stealthy liberalisation of the Customs tariff regime. The government has proposed a series of duty reductions and exemptions on electronics components, semiconductors, medical devices, aviation parts and clean energy inputs. This is not random tinkering; it is a deliberate concession to long-standing US trade demands, as a pre-requisite to the trade agreement itself, designed to signal compliance and goodwill rather than safeguard domestic interests or negotiate compensatory access. This sequencing has rendered the entire arrangement structurally skewed, anti-farmer, anti-MSME, and fiscally costly, that exposes domestic manufacturers to asymmetric competition without reciprocal benefits. Far from strengthening India's production base, the administration’s strategy appears oriented towards managing optics in Washington at the expense of the Indian fisc, agriculture, industry, and livelihoods.

The Budget’s microscopic interventions cannot mask its macroscopic failures. The investment rate (Gross Capital Formation) remains stuck at a mere 33 per cent of GDP for 2026-27, down by more than five percentage points since 2012-13. Exports as a percentage of GDP have shrunk from 24.9 per cent in 2013-14 to an estimated 21.5 per cent now. Gross Domestic Savings have stagnated around 30 per cent, failing to breach past peaks. These are the core symptoms of an economy struggling to transition to a more productive, globally competitive, and investment-driven model.

The vision of a “Viksit Bharat” powered by cutting-edge technology is betrayed by the comparative paucity of commitment: While China dedicates $40 billion to semiconductors and $56 billion in state funding for AI, India’s corresponding figures are a tentative $4.5 billion and a paltry $1.2 billion over five years, reliant on foreign capital.

The finance minister’s speech, in a telling evasion, speaks around the problem — mentioning skills, startups, and manufacturing — but never directly confronts it. The data is devastating. The allocation for labour, employment and skill development has been more than halved in the revised estimates for the current fiscal, plummeting from Rs 32,496 crore to Rs 12,759 crore.

The Budget is a document of managed decline, where the nominal growth assumption of 10 per cent for next year is itself an admission of a slower new normal, likely fuelled more by inflation than real expansion. It is the Budget of a government that has, through a series of shocks such as demonetisation and a complex GST, broken the virtuous cycle of broad-based demand, job creation and private investment.

The Union Budget 2026-27 will be remembered not for what it achieved, but for the profound challenges it chose to ignore. It is a calculated murmur of an administration navigating the constraints of a weakened mandate and a weakened economy, its ambitions downsized to fit the diminished horizons it now accepts as India’s fate.