SOLID STATE DRIVE

No big bang measures, but the government doubles down on capex and still has a credible shot at balancing the fisc

- NIRANJAN RAJADHYAKSHA

The new Union budget presented by Nirmala Sitharaman on Sunday was crafted against a set of unique circumstances that have emerged in an increasingly turbulent world over the past year.

First, in a profound change in fiscal strategy, the finance minister had announced a year ago that she would aim to bring down the burden of public debt over the next five years, rather than mechanically focus on the annual fiscal deficit alone. Second, the remarkable economic stability secured since the end of the pandemic has recently (and paradoxically) been accompanied by foreign investment outflows as well as a weakening rupee. Third, the upending of the old global economic order by US President Donald Trump has meant that India has to build strategic depth in key parts of its economy, through either domestic production or by plugging into supply chains even as they are being reconfigured.

Budget 2026 continues with the recent run of budgets based on sensible assumptions about revenues, spending and borrowing. The budgets presented by Sitharaman during this decade have repaired the credibility of Indian fiscal policy. The conservatism is evident this year as well. For example, the tax-to-GDP ratio in the financial year 2027 is actually assumed to be lower than it will be for the current financial year, which is an implicit financial buffer built into the government budget. It is far better to overshoot modest revenue targets rather than undershoot ambitious ones.

Disciplined fisc