The Union Budget 2025-26 lays out a clear vision for a self-reliant and globally competitive India. The Budget, when viewed in the context of the challenging global economic environment, introduces key reforms to boost consumption, while simultaneously taking steps to attract investment to sustain and reinvigorate economic momentum. Additionally, it builds on past policies while taking new steps toward inclusive growth, economic stability, and sustainability, aligning with the longer aspirational goal of Viksit Bharat—a developed and self-sufficient India. It is not only a financial statement but also a roadmap that embodies the government’s strategies and aspirations for the Indian industry, infrastructure, and economic growth.
India has set an ambitious target of becoming a $7 trillion economy by 2030, requiring a Compounded Annual Growth Rate (CAGR) of 10.1% from 2024 to 2030. The Budget FY26 uses a systematic strategy that prioritises raising investments in infrastructure and industry while maintaining fiscal discipline in order to accomplish this goal. The approach is to maintain investor confidence and stable sovereign credit ratings by keeping the fiscal deficit on a downward trend. The deficit for FY25 is projected at 4.8% of Gross Domestic Product (GDP), with the finance minister targeting a reduction of deficit to 4.4% in FY26. Borrowings are pegged at ₹15.68 lakh crore for FY26, a negligible decline over the ₹15.69 lakh crore in FY25, signaling a need for careful debt management to prevent inflationary pressures and crowding out of private credit.
The FY26 budget emphasises increased capital allocation to key sectors such as manufacturing, textiles, and electronics. This investment aims to stimulate domestic production, reduce import dependency and create jobs.
Programmes like Make in India receive additional funding to enhance manufacturing capabilities. The budget allocates funds specifically for micro, small, and medium enterprises (MSMEs) through easier access to credit and subsidy programmes. Several tax reforms cater to reducing the tax burden, especially for startups and emerging businesses. The extension of tax holidays and reduced corporate tax rates for new firms are favourable features that encourage entrepreneurship.
Importantly, while prioritising capital expenditure, the government remains committed to fiscal consolidation. This disciplined approach ensures that the central government debt remains on a declining trajectory as a percentage of GDP. The government however, needs to balance fiscal prudence with the need to stimulate growth. Businesses might be concerned if the fiscal deficit widens significantly, as it could lead to inflationary pressures and higher interest rates. There are also debt concerns – the budget outlines substantial borrowing to finance increased spending. While this may stimulate growth in the short-term, rising national debt can pose long-term sustainability issues and impact investor confidence.
Another standout feature of the FY26 budget is the emphasis on Public-Private Partnerships (PPP) aimed at accelerating infrastructure development. Each ministry responsible for infrastructure will develop a three-year pipeline of projects suitable for implementation under the PPP model and will also encourage states to do the same. Additionally, an outlay of ₹1.5 lakh crore is proposed for the 50-year interest free loans to states for capital expenditure and incentives for reforms. As a result, the Indian industry stands to benefit significantly as it mobilises private capital and expertise to complement government efforts.
Economic growth requires significant investments in infrastructure projects, including roads, railways, and urban development. While the Budget does emphasise a number of infrastructure-related elements, such as the support to civil aviation and ship-building sectors, the emphasis on green and sustainable infrastructure, investments in renewable energy, electric vehicles, and public transportation, enhanced allocation for digital infrastructure, the talking point has been the lack of any increase in allocation for capital expenditure (CAPEX) for infrastructure, which rises from approximately ₹11.11 lakh crores to ₹11.20 lakh crores. This represents a relatively stagnant growth rate compared to previous years. This minimal increase in CAPEX is likely to raise questions about Government’s intentions to elevate economic activity, especially when the comparison is made to previously more robust budget increases. But a lot of this debate is ignoring the very simple fact that even the proposed ₹11.20 lakh crores allocation to CAPEX is a huge amount. Our spend in the current FY was lower than this and even spending this so-called ‘stagnant CAPEX allocation” will require a monthly spend of around ₹95,000 crores – by no means an easy task.
The Budget shows a commitment to create jobs through various initiatives, particularly through large-scale investments in certain labour intensive areas and in the revival of key sectors. Various schemes such as the Focus Product Scheme in the footwear and leather sector, and incentives for emerging areas such as toy manufacturing and tourism further highlight the Budget’s targeted approach to employment generation. Alongside this, gig workers, which is one of the fastest-growing segments of the labor force (expected to grow at ~12% CAGR and employ 23 million individuals by 2030), will benefit from extended social security measures via the e-Shram portal and PM Jan Arogya Yojana, covering one crore platform workers.
The FM has also underscored the importance of private sector investment to complement public spending, for the generation of employment. Key measures include allocating ₹1 lakh crore to the Urban Challenge Fund to transform cities into robust economic hubs, creating 50,000 Atal Tinkering Labs to instill innovation at the school level, and investing ₹500 crore in AI research in education to build a future ready workforce. The proposed establishment of five National Centres of Excellence in Skilling, to develop a skilled manufacturing workforce thus enabling Make in India, Make for the World is a welcome initiative too.
The MSME sector has indeed received considerable support in the Indian budget, a reflection of its vital role in driving economic growth and development. However, this emphasis on MSMEs can inadvertently overshadow the contributions of larger enterprises, which are equally crucial to the country’s economy. Big corporations not only provide significant employment opportunities but also contribute to a considerable portion of the GDP, drive exports, and fulfill critical roles in supply chains
Tax breaks or incentives for research and development (R&D) serve as positive reinforcers to larger firms for investing in new technologies and innovations. Currently, the government spends 0.6% of its GDP on R&D against the global average of 2.6%. Given this statistic, the emphasis given by the government towards private sector contribution in the R&D sector for innovation-led growth would still require central support.
Also, the regulatory environment still remains complex. New compliance measures can overwhelm small businesses, leading to increased costs and bureaucratic red tape. Even the structural reforms in critical sectors like labour laws and land acquisition have been moving at a snail’s pace. The establishment of a high-level committee tasked with recommending regulatory reforms is a significant step towards creating a more business-friendly environment. However, industry and think tank representatives must be involved in this committee to ensure evidence-based policymaking, leveraging independent research and data driven insights, to craft policies that are both strategic and practical.
Finally, very little has been done to improve liquidity for the private sector in the budget, a critical oversight. Infrastructure projects usually demand a large initial capital investment and produce revenue streams over longer periods of time. Commercial banks are, therefore, reluctant to provide lending for infrastructure projects. The asset-liability mismatches along with the perceived risk of non-performing assets add on to the persisting challenges in securing funding for such projects. To address these concerns, it will be important for the government to push policy driven incentives that encourage banks to allocate a certain “pre-committed” percentage of their loan portfolio towards infrastructure, even after the budget. However, RBI in its monetary policy on February 7, has addressed this key concern by announcing a 25 basis point repo rate cut which will inject more liquidity into the market.
Budget FY26 presents a mixed bag of opportunities and challenges for industry, infrastructure and economic growth. The positive aspects, such as increased investments in key areas, support for MSMEs, and a focus on sustainable development, highlight the government’s commitment to revitalizing the economy. Overall industry stakeholders will be happy with the focus on PPP, infrastructure spending, asset monetisation, regulatory reforms, and sector-specific initiatives; it also raises potential challenges that require careful navigation. Moving forward, collaboration between the government and the private sector will be essential. Businesses must proactively engage with policymakers to advocate for supportive regulatory frameworks, and they must remain agile to adapt to market changes. Ultimately, the success of this Budget will depend on how effectively the government navigates these challenges, ensuring continuous monitoring and an adaptive policy framework. The recipe of combining fiscal discipline, targeted public investments, and strong private sector engagement offers a promising framework for India to sustain its ambitions of becoming a $7 trillion economy by 2030.
This article is authored by Shishir Priyadarshi, president, Chintan Research Foundation, New Delhi.