The Hindu Editorial Analysis
02 February 2026
Budget 2026 bets big on industrial growth
(Source – The Hindu, International Edition, Page no.-10 )
Topic: GS Paper – GS 3 : Indian Economy, Budgeting, Industrial Policy, Infrastructure, Manufacturing
Context
Budget 2026–27 is presented at a moment when the Indian economy is witnessing a rare Goldilocks phase — relatively high growth combined with low inflation. India has emerged as the world’s fourth-largest economy, overtaking Japan, and continues to retain the tag of one of the fastest-growing major economies.
However, beneath the optimistic macroeconomic indicators lie structural vulnerabilities, particularly from geopolitical tensions, tariff wars, and global supply chain disruptions. The Budget attempts to balance optimism with realism by emphasising continuity, fiscal prudence, and public investment-led growth, rather than short-term stimulus.
Macroeconomic Strategy: Growth with Prudence
The Budget reinforces its commitment to:
- Public infrastructure-led growth
- Fiscal consolidation
- Medium-term stability over short-term populism
Key indicators include:
- Capital expenditure target raised to ₹12.2 lakh crore for FY27
- Fiscal deficit pegged at 4.3% of GDP
- Debt-to-GDP ratio targeted to decline to 50% in the medium term
Growth assumptions remain realistic, with:
- Nominal GDP growth above 10%
- Real GDP growth estimated at 6.8–7.2%
- Inflation expected to remain moderate, around 4%
This reflects a conscious decision to sustain growth momentum without compromising macroeconomic stability.
Focus on Fiscal Prudence
Despite a higher gross borrowing of ₹17.2 trillion and net borrowing of ₹11.7 trillion, the Budget stays within a disciplined framework. The continuation of higher borrowing signals confidence in growth prospects but also constrains the scope for aggressive interest rate cuts.
The emphasis remains on:
- Containing debt risks
- Maintaining investor confidence
- Avoiding fiscal slippage in a volatile global environment
Support for Frontier and Strategic Sectors
A defining feature of Budget 2026 is its explicit pivot towards manufacturing and industrial deepening.
Strategic Manufacturing Push
Support has been expanded to seven strategic and frontier sectors, including:
- Semiconductors
- Electronics components
- Biopharma and chemicals
- Capital goods
- Textiles
Notable announcements include:
- Electronics Component Manufacturing Scheme outlay raised to ₹40,000 crore
- Launch of India Semiconductor Mission 2.0 to deepen domestic chip manufacturing
- ₹10,000 crore for a new container manufacturing scheme
- Reinforced logistics backbone through freight corridors and transport investments
These measures aim to move beyond Production Linked Incentives (PLI) and build long-term industrial capabilities while reducing dependence on vulnerable global supply chains.
MSMEs and Export Competitiveness
The Budget recognises the centrality of MSMEs in employment and industrial resilience:
- Special support for khadi, handicrafts, and traditional sectors
- A proposed ₹10,000 crore SME Growth Fund to bridge equity gaps for scalable enterprises
- Measures to strengthen structured financing for MSMEs
Export-oriented sectors impacted by higher U.S. tariffs — particularly textiles, leather, and seafood — receive targeted relief. Logistics upgrades and container manufacturing are expected to enhance export competitiveness.
Technology, Services, and Emerging Contradictions
While manufacturing receives prominence, the Budget also places bets on:
- Data centres
- Global cloud service providers using Indian infrastructure
- Extended tax concessions for technology investments
However, contradictions emerge:
- Services sector employment elasticity remains low despite expectations of job growth
- Artificial Intelligence and automation continue to displace jobs in parts of services
- Expansion of data centres is not adequately matched by trust in power generation capacity, despite their high energy consumption
The Budget also remains silent on managing rupee volatility, even as the Economic Survey highlights the paradox of strong growth alongside currency instability.
Disinvestment and Revenue Realisation Concerns
A persistent concern is the execution gap in disinvestment:
- Last year’s target: ₹47,000 crore
- Actual realisation: ₹8,768 crore
This shortfall raises questions about revenue assumptions and limits fiscal flexibility going forward.
The Gaps in the Strategy
Despite a strong industrial thrust, several gaps remain:
- Absence of a comprehensive industrial policy to integrate announcements into a coherent framework
- Insufficient emphasis on domestic demand generation, critical given volatile external demand
- Effective capital expenditure for 2025–26 fell short of budgeted levels, weakening multiplier effects
- Employment and income growth remain crucial but under-discussed
As global demand remains uncertain, domestic consumption and employment will be decisive for sustaining manufacturing expansion.
Conclusion
Budget 2026–27 marks a clear shift toward industrial growth and manufacturing resilience, anchored in fiscal discipline and public investment. It signals intent to deepen India’s industrial base, strengthen strategic sectors, and insulate the economy from global shocks.
However, for these ambitions to translate into durable growth, the Budget must be complemented by:
- A coherent industrial policy
- Strong domestic demand
- Better execution of capital spending
- Employment-focused manufacturing expansion
The challenge for 2026–27 will be to run a marathon and a sprint simultaneously — sustaining long-term structural transformation while addressing immediate growth and employment needs.