Budget 2026: Prudent push for sustainable growth

The budget demonstrates the government's clear intent to secure long-term growth while making the Indian economy more competitive, inclusive and future proof.

The finance minister should be commended for staying firmly on the fiscal consolidation path despite the tax revenues in FY26 being 5.7% lower than budget estimates.

The budget has been conservative in its estimates with tax buoyancy for FY27 assumed at 0.8 and lower than the previous year. With the discontinuation of the compensation cess, revenues accruing to the Centre from GST are projected to be lower by 3% in FY27 vis-a-vis FY26. The share of revenue expenditure other than interest in the total expenditure is proposed to be reduced from 52.2% to 50.8%.


The government has managed to budget an additional capex of ₹1.26 lakh crore for FY27, reflecting improved quality of fiscal deficit.

One of the remarkable features of the budget is the government's focus on policy nudges and incentives in sectors which are not only strategic but also those that have long-term implications for the economy. Notable among them are nuclear power, data centres, global capability centres (GCCs), and maintenance, repair and operations (MROs), among others.

In the nuclear power sector, by extending the zero basic customs duty on imports on new projects until 2035, the budget lowers capital costs for developers. Such impetus to nuclear power will reduce energy costs, ensure India's energy security, and improve access to decarbonised power.

Similarly, data centres are being incentivised through provision of a long-term tax holiday until 2047 for foreign companies, only for provision of cloud services to customers globally. The expansion of the India Semiconductor Mission will also encourage private investment across fabrication, design, and equipment manufacturing, and will help build a full-stack ecosystem.

The development of data centres, together with the focus on use cases and skilling, will accelerate the AI ecosystem in India.

Simultaneously, the changes in the income-tax laws to facilitate availability of components for just-in-time manufacturing and capital equipment for tolling arrangements will improve the economics of electronics manufacturing.

The proposal to develop dedicated rare earth corridors will help develop India's strategic supply chains. Supported by customs duty exemptions on capital goods, the initiative aims to create an integrated mining-to-manufacturing ecosystem and complement existing schemes, facilitating the development of an end-to-end domestic value chain in what is a geopolitically sensitive sector.

Alongside new-age manufacturing and energy sectors, the budget incentivises investments in GCCs. They are a powerful driver of services exports, job creation, and advanced skills development, including in AI and emerging technologies.

The decision to unify all IT services under a single category with a common safe harbour margin of 15.5% significantly reduces ambiguity and enhances tax certainty for the sector.

Meanwhile, under the APA (Advanced Pricing Agreement) framework, allowing an entity to file modified returns for its associated enterprise will improve group-wide transfer pricing certainty and reduce inconsistencies.

Boosting investment across these sectors is expected to have a strong trickle-down effect on India's 10 million registered MSMEs. The proposed ₹10,000-crore SME Growth Fund, along with credit guarantee schemes for invoice discounting, would make additional capital available for small businesses.

Overall, the budget offers a prudent, credible roadmap to increase competitiveness and long-term growth. However, had the divestment target been substantially increased, it would have provided the government with even more resources and greater fiscal flexibility.