Not all reforms are announced in the budget. More so in a world where rules of the game are being constantly rewritten as well as being rigged. This year’s Union Budget comes less than a week after India signed a Free Trade Agreement (FTA) with the European Union, offering unprecedented tariff concessions to a large economic block. That many more trade deals, including the one with the US, are currently being negotiated, perhaps ruled out blanket big-bang announcements on the customs duty front in the budget.
After the roll-out and rationalisation of Goods and Services Tax (GST) in 2017 and 2025, slashing of corporate tax rates in 2019 and a new income tax law and significantly relaxed slabs in 2025, customs are the only tax head to have escaped radical reforms. Here, the 2026-27 Budget has followed the incrementalism of trying to correct what experts have termed as inverted duty structure –– input imports being taxed more than output exports –– impediment to India increasing its share in global value chains rather than any big-bang announcements. While consistent with the government’s established practice, this year’s budget will underwhelm observers on this front given the finance minister’s bold declaration of customs being her next big priority at the Hindustan Times Leadership Summit last year. Perhaps it is a reflection of the fragmentation in geo-economics at large than the government’s thinking where deals are being made on a one-on-one basis than with the world at large. Perhaps, the government believed that it had completed its required credits for the reform course before the budget by things such as roll-out of labour codes and increasing FDI limits in sectors such as insurance and opening up critical sectors such as nuclear power (the finance minister mentioned that India had undertaken 350 reforms since August 2025). Be that as it may, there are no big-bang immediately applicable reforms in this budget.
Not all reforms are stated at the outset either, no matter how game-changing in nature eventually. This is exactly how the budget’s announcement of creating a high-level committee on banking for Viksit Bharat (developed India) ought to be seen. This government assumed power at a time when the Indian economy was mired in what is now known as the Twin Balance Sheet crisis where banks and corporates were saddled with bad loans, creating a downward spiral for investment and future growth. After more than a decade of cleaning up bank balance sheets, which has also taken a lot of taxpayers’ financed recapitalisation of government owned banks, the economy now faces a different kind of challenge. Both bank and business balance sheets are the healthiest they have been in a long time, but the private investment engine continues to stutter rather than rev. Is the reason for this stuttering to be found in misaligned incentives for the financial sector and industry/infrastructure players? Are commercial banks designed to lend money to build long-term infrastructure projects where fund requirements are large and returns take time to materialise? Can India’s banking sector be tweaked to align return-oriented household savings with the larger objective of boosting domestic capital formation? One will have to wait for the terms of reference for this committee to be released but these are all questions which require out-of-the-box radical reforms to achieve India’s growth aspirations without sacrificing its financial stability concerns.
{{/usCountry}}Not all reforms are stated at the outset either, no matter how game-changing in nature eventually. This is exactly how the budget’s announcement of creating a high-level committee on banking for Viksit Bharat (developed India) ought to be seen. This government assumed power at a time when the Indian economy was mired in what is now known as the Twin Balance Sheet crisis where banks and corporates were saddled with bad loans, creating a downward spiral for investment and future growth. After more than a decade of cleaning up bank balance sheets, which has also taken a lot of taxpayers’ financed recapitalisation of government owned banks, the economy now faces a different kind of challenge. Both bank and business balance sheets are the healthiest they have been in a long time, but the private investment engine continues to stutter rather than rev. Is the reason for this stuttering to be found in misaligned incentives for the financial sector and industry/infrastructure players? Are commercial banks designed to lend money to build long-term infrastructure projects where fund requirements are large and returns take time to materialise? Can India’s banking sector be tweaked to align return-oriented household savings with the larger objective of boosting domestic capital formation? One will have to wait for the terms of reference for this committee to be released but these are all questions which require out-of-the-box radical reforms to achieve India’s growth aspirations without sacrificing its financial stability concerns.
{{/usCountry}}Not all reforms can be achieved by a central decree given India’s federal structure. This is where the importance of reforms-via-nudge comes in, which is something this government has been trying to exploit as much as possible. After experimenting successfully with interest free loans for capital spending by states, the budget has now set its eyes on nudging large municipal corporations to directly raise money from the market and promised to provide an incentive of ₹100 crore for every bond issuance of at least ₹1,000 crore. This amounts to a 10% subsidy on market loans and is a top-up to an existing scheme for municipal bonds. Will this encourage large city bodies to become enterprising and responsible at the same time and plug infrastructure gaps and improve quality of life? One will have to wait and see whether this strategy works.
Not all reforms are non-zero-sum-games. What is often a friendly policy for one player can be harmful for others. The increase in Security Transaction Tax (STT) for futures and options markets is a huge spoiler for large players who have made a fortune in this market. But there is another side to the story as well. When India’s stock market regulator summoned and eventually banned Wall Street giant Jane Street for allegedly playing dirty in the options market and making huge windfall profits at the expense of millions of retail investors, ease of doing business –– India had become the world’s largest options market by volume –– was seen as pitted against financial health of the most vulnerable participants in the market. At a time when domestic investors have kept the stock market going despite large-scale selling by foreign investors and a large global disruption could potentially strike a big blow at their financial market investments, killing or at least throwing a spanner in the works of a booming speculative market might not necessarily be a bad idea. When seen with the government’s decision to ban online gaming last year, it could well be a part of a larger strategy to discourage harmful speculation by millions of gullible Indians.