It has by now become Finance Minister Nirmala Sitharaman’s signature tune – what runs as a common thread through her eight consecutive Budgets, including this one, is their focus on sectoral detail, with policy initiatives peppered across a spectrum of areas. To some, it might seem that this Budget missed out on a ‘big reform idea’. For a government that is in its third term, very stable and with no big elections on the horizon, barring Delhi and Bihar, this might have been the time to break out of the mould . But there’s a ready counter to such a view – that earlier Budgets did revolve around larger themes, such as skilling and employment generation in the July 2024 Budget. This Budget takes that theme forward by incentivising MSMEs and focusing on their ease of doing business. The rooftop solar initiative as well as the various performance linked incentives were unveiled in earlier years. So it is just as well that this Budget sticks to its knitting, as it were – which is to ensure that existing policy initiatives and promises are implemented at a time of global uncertainty and a bit of stress on the external account.

This is by and large, a play-it-safe Budget. The Centre has not just undershot its fiscal deficit target of 4.9 per cent of the GDP for the current fiscal, but chosen to be fiscally conservative for FY26, pegging the target at 4.4 per cent of GDP and at the same absolute level as the current fiscal of about ₹15.6 lakh crore. With financial uncertainty very much in the air, thanks to a mercurial dispensation in the US, it seems that the government has decided to cap its market borrowings. To its credit, the Centre has tried to work around this fiscal constraint by pushing household consumption. The middle class has been offered tax rebates that seem attractive, except that the revenue forgone for the Centre amounts to just ₹1 lakh crore, a drop in the ocean vis-a-vis total household expenditure, but nevertheless a potentially promising sentiment-booster.

What seems a bit inexplicable are the revenue growth assumptions. Income tax mop up estimates at ₹14.4 lakh crore for FY26 do seem ambitious as they are 14 per cent up from the revised estimates for FY25. This exceeds the tax buoyancy of 1.1 (given the nominal GDP growth assumption of 10.1 per cent for FY26) that is generally assumed in such estimates. It is instructive here to note that India’s nominal growth rate in FY25 has so far undershot the assumption of 10.5 per cent, and is expected to be about a percentage point lower. Be that as it may, the budgeted income tax collection for FY26 does nothing to reduce the burden of the households in tax collections vis-a-vis that of the corporates. Income tax collections are expected to account for 42 per cent of total revenue receipts, against 40 per cent this year (₹12.6 lakh crore). It is to be hoped that the revenue assumptions of the Centre come good. They are also predicated on the Reserve Bank of India (and PSU banks) paying a dividend of ₹2.5 lakh crore in FY26, against ₹2.3 lakh crore this year.

The expenditure increase across sectors is modest, in many cases at close to budgeted levels for the current year. With the government having settled in only well into this fiscal, allocations for FY25 have been undershot across the board. This includes a capital expenditure outlay of ₹11.2 lakh crore for FY26, against ₹11.11 lakh crore in this year’s Budgeted estimates. If the government is re-examining its assumption on whether capex is indeed generating the anticipated multiplier, it is to be welcomed. The government’s efforts to explore new PPP frameworks with the States to execute projects is a welcome initiative. A flat subsidy bill for FY26 (about ₹3.6 lakh crore), with a dip in the case of fertilizer subsidy, implies that the Centre has not accounted for a major increase in oil prices.

In terms of policy announcements, the Budget continues with the traditional focus on agriculture (which is always to be welcomed) by trying to boost India Post as a credit conduit and raising the credit limits for Kisan Credit Card, besides enhancing credit for self help groups. In step with the Economic Survey, the government said it was working on Jan Vishwas Bill 2.0 to further decriminalise a slew of offences. Labour intensive sectors too such as leather, toys and textiles have received policy and tariff attention, but so have efforts to promote skills in AI as well as centres of excellence in education and high end research.

The Centre seems to have come around to the view that it should stick to fiscally safe budgeting, while taking proactive regulatory steps to promote investments, both foreign and domestic, such as raising the FDI limit in insurance to 100 per cent. However, it must not lose sight of the fact that to boost investments sustainably, domestic savings need to be shored up. This Budget ticks the right boxes for an economy that needs both growth and stability in choppy global waters. But next time around, it could strive for more.

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