A Budget Without Urgency

Fiscal Virtue, Growth Be Damned: Budget 2026 Misses A World In Flux

By TK Arun

It is no surprise that the stock market gave the Budget a thumbs down. Increasing the securities transaction tax (STT) — it makes every trade more expensive, and makes fine pricing of derivatives to hedge against the entire range of risk impossible — is bad enough. 

The Budget also acted as if the Supreme Court ruling disallowing Tiger Global’s capital gains tax exemption, claimed in the Flipkart stake sale, was of no concern to the government. The ruling, which nullifies the grandfathering of tax exemptions availed for capital inflows routed through Mauritius before 2017, has given jitters to all investment inflows into India.

How stable is any tax assurance held out by the government of India? Is it any wonder that India is not a red-hot destination for capital scouring the world for profitable deployment?

Hardly The Right Prescription

But the government has pleased the credit rating agencies, hasn’t it, making steady progress on fiscal correction? The Gross Fiscal Deficit is slated to come down to 4.3% of GDP, after having met the target of 4.4% of GDP for 2025-26. The government compressed its spending to meet the fiscal deficit target for the current fiscal: capital expenditure has been almost Rs 25,000 crore lower than budgeted. 

The total expenditure for the next fiscal is slated to come down to 13.6% of GDP from13.9% of GDP last year. At a time when corporate earnings are anaemic and private capital investment reluctant, except in some infrastructure-related sectors, the Budget should have aimed for a total expenditure of at least 15% of GDP. 

Sacrificing the stimulus flowing from total government spending to flaunt fiscal discipline is hardly the right prescription in an economy lacking growth momentum, except in headline numbers that might well be revised downward in the near future.

No Urgency Or Vision

But the real disappointment is the wholly absent sense of urgency in responding to the rupture in the global order, in which an isolationist US has abdicated its role as geopolitical anchor of a rules-based international order and is no longer a reliable source of support for India, in case of hostile developments on the northern border. 

India has to vastly step up its defence outlays and research and development to support strategic autonomy. It has to invest in the education sector at all levels, to create the faculty of critical thinking in its emerging workforce that will find many conventional labour-intensive manufacturing jobs being performed by robots guided by artificial intelligence.

This means the Centre focusing on the responsibilities assigned to it in the Constitution, leaving the states to attend to the areas assigned to them, and saving the funds that the Centre currently lavishes on wanton trespass into the states’ legitimate domain. There has been no such move or thinking in the Budget. Instead, we have yet more strings of central sector schemes in State subjects.

Fueling Tanks, Emptying Plates

The Budget speech made much of promoting animal husbandry. The entire poultry industry is at risk from expensive corn, thanks to the government’s obsession with ethanol blending. Eggs, the cheapest source of vital proteins, see their prices rise as grain becomes the source of 56% of the ethanol produced in India, leaving sugarcane far behind.

The Budget’s heart bleeds for the small and tiny industry, and offers many more new schemes to help them. But the biggest help they need is access to formal credit. For that, NBFCs that lend to small enterprises need to be able to raise money from the bond market, even if they can do that by issuing high-yield bonds. At present, such bonds are deemed subprime. 

A vibrant market for corporate debt can emerge in India only when government and corporate bonds form a unified market under SEBI’s control, and derivatives proliferate to hedge against currency, interest rate and credit risk. The steep rise in STT kills the derivatives market, instead of fostering a healthy capital market.

But initiatives like carbon capture and a refrain from excessive electioneering are its saving grace.

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