E-Paper
What the Budget means for: Growth
The immediate and tangible growth question aside, what does the budget tell us about India’s larger ambitions?
What does Union Budget 2026-27 do for economic growth? There are two ways to look at the question.
The Economic Survey claimed that India’s potential growth rate –– the pace at which the economy can grow without triggering inflation –– has increased from 6.5% to 7%. It has projected a growth rate of 6.8%-7.2% for 2026-27. The implication, of course, is that this government’s past efforts have helped and it can rightfully take credit for it. On the nominal growth front –– this is what the budget is concerned with and projects –– the assumption is more conservative with a projection of 10%. It is slightly lower than last budget’s 10.1% assumption but significantly higher than the 8% nominal growth, according to the first advanced estimates of 2025-26 growth released by the National Statistical Office (NSO) in January.
The short point is, this year’s budget is hoping for some revival in inflation to support growth as far as the budgetary math is concerned. Analysts believe this is in the realm of possible. “Nominal GDP growth has been pegged at 10% for FY27, in line with our expectations. The risk here is that growth may come in a shade higher this year because of a normalising GDP deflator,” Pranjul Bhandari, Chief India Economist HSBC said in a note.
The immediate and tangible growth question aside, what does the budget tell us about India’s larger ambitions? It is best summarised as an emphasis on high-value agriculture, continuing to play on India’s service sector strengths and keeping at the task of boosting manufacturing, both of the cutting edge and labour-intensive varieties.
That the budget talks about coconuts, cashews, almonds, sandalwood and cocoa instead of cereals and pulses and oilseeds suggests that the government is now hoping to target high-value farming rather than the traditional areas of boosting agricultural growth and farm incomes. To be sure, such a strategy is more a targeted income-boosting approach rather than solving the larger viability crisis which affects Indian agriculture.
On services, the budget sets itself an ambitious target of achieving 10% of global service share by 2047. Numbers from the World Bank put the audacity of this ambition in perspective. India’s services value added was 2.7% of the world’s in 2023 –– the latest period for India and world shares are available –– in current dollar terms. This number has increased by only two percentage points from 1995, the earliest period for which this calculation can be made.
The services growth turnaround –– as far as the budget’s thinking goes –– will have to come from all areas. It will include data centres established by foreign companies in India which will serve a world running on AI to Indians taking up jobs as varied as trekking guides to allied health professionals to content creators in what the government sees as a rapidly growing Orange Economy. Realising this objective will require harnessing AI’s promise as well as mitigating its employment headwinds, which is what a committee on linking education and employment will study and make a plan for, according to the budget.
What about the toughest of them (growth drivers), which the Indian economy has been pursuing for a long time ?
On manufacturing, the budget has tried to balance all concerns through multiple policies, often extremely specific in nature. “The Electronics Components Manufacturing Scheme, launched in April 2025 with an outlay of ₹22,919 crore, already has investment commitments at double the target. We propose to increase the outlay to ₹40,000 crore to capitalise on the momentum”, the speech says while also announcing that the government is now reducing duties on components for making microwave ovens.
Among the more long-term plans to boost electronics manufacturing via mitigating the disruptions on the supply chain front is the announcement of a proposed rare earth corridor. Indian manufacturers in sectors such as automobiles have suffered because of Chinese restrictions on supply of rare earth inputs. Similarly, the budget has also announced the creation of three dedicated chemical parks and a focus on bio-pharma manufacturing.
Then there are multiple announcements which seek to promote manufacturing in various sectors such as construction and engineering goods, shipping containers, toll manufacturing etc. which can be seen as an effort to promote import substitution in the infrastructure sector which is expected to continue its high growth going forward.
There are a host of announcements regarding labour intensive manufacturing, including but not limited to sectors such as sports goods, handloom etc. Interestingly, the speech also talks about a “scheme to revive 200 legacy industrial clusters to improve their cost competitiveness and efficiency through infrastructure and technology upgradation” although no details have been given. To be sure, some of the objectives, such as boosting Medium and Small-Scale Enterprises are not finding a mention for the first time in the budget, and only double down on some of the support being offered to these sectors.
Last but not the least, the budget’s biggest service to growth might come from a smaller-than-expected fiscal contraction this time which has kept the overall fiscal impulse neutral rather than contractionary. “The fiscal consolidation for FY27 is the slowest in six years. And the budgeted disinvestment, which is a below-the-line funding item, is likely to see the highest rise in six years. The combination of the two means after several years, the fiscal impulse will go from negative to neutral, and this should be good news for GDP growth,” Bhandari said in her note.
