Everybody in India has demands of the budget. The range varies from structural reforms to specific reliefs such as taxes or a new scheme targeted at a poll-bound state. The government, of course, has its own priorities such as the fiscal glide path. In normal course, the balance is often decided by the larger political economy cycle; pre-election budgets tend to be more populist while prudence is prioritised when political concerns are not so pressing.
The Narendra Modi government prioritised
Everybody in India has demands of the budget. The range varies from structural reforms to specific reliefs such as taxes or a new scheme targeted at a poll-bound state. The government, of course, has its own priorities such as the fiscal glide path. In normal course, the balance is often decided by the larger political economy cycle; pre-election budgets tend to be more populist while prudence is prioritised when political concerns are not so pressing.
The Narendra Modi government prioritised prudence even in its pre-election budget before the 2024 Lok Sabha elections. The markets rewarded it — India received three ratings upgrades last year — but there is good reason to believe that the BJP did lose a bit of political capital because of this decision. It has more than recovered from those setbacks by now.
The 2025-26 Economic Survey, tabled in Parliament on January 29, suggests that fiscal prudence will continue to guide the budget’s approach this year as well. This also means that the budget might not score very big on the populist parameter. So far, so good.
However, the Survey has also made it clear that just a balanced fisc is not going to be enough to take India forward on the path of becoming a developed country. It has said so because it believes that the external environment has changed discernibly, and a large disruption awaits despite India doing nothing wrong in the domestic economy. This, in a way, raises the bar for the budget which will be presented on Sunday. Being responsible is not going to be good enough. The need of the hour is to be radical.
What more can the budget do to build a firewall against external headwinds and rejuvenate animal spirits in the domestic economy? The survey has made it clear that the approach cannot be one of autarky or giving up on manufacturing. That the Economic Survey and the Union Budget are being presented in the same week when India signed an FTA with the EU, which embraces trade openness at a level hitherto not seen in India, is not just a coincidence. What is even more important is the Survey’s suggestion that India’s problem is not so much about intent and ideas for reform, but the inability to align the larger incentives to make sure that all economic stakeholders act in sync. It has been courageous enough to flag that the bureaucracy is often risk averse rather than proactive, the political class is populist rather than prudent, and even capital is pursuing narrow interests rather than acting in a way which would further national interest. Unless this vicious cycle is broken, India’s economic trajectory will continue to face an almost insurmountable gravity.
Can the budget take this problem head on? Last year, it announced steps such as an Administrative Reforms Commission. The finance minister, while speaking at the Hindustan Times Leadership Summit last year, highlighted the importance of convincing states to not get carried away by the short-term political gains of measures such as cash transfers. Will the 16th Finance Commission awards — they will likely be tabled along with the budget on Sunday — provide any institutional nudges to improve the quantity as well as the quality of states finances without making the states feel that their fiscal autonomy is being squeezed?
One could go on adding individual things to the list — but the larger point is more important. The world, as we know it, is changing. The transition will not be painless. Business as usual cannot be an option for India at this moment. The budget must convey this larger message unequivocally.
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