OPINION | A budget that furthers the reforms process

The basic assumptions of the Budget seem to be in order.

This Budget is a continuation of the economic reforms process of the previous years, with the objective of achieving higher, sustained economic growth, and realizing the vision of Viksit Bharat by 2047. Despite the challenges to the economy from global policy resets and lower capital flows, the economy has been able to clock a real growth of 8% in H1FY26. However, the growth is seen slowing in FY27, with the Economic Survey having put out a broad range of 6.8-7.2% for the year.

On the other hand, the Economic Survey did mention the fact that the potential growth of the economy is now at 7%, up from 6.5% and this was made possible by the economic reforms process.

Underlying assumptions are sound

The basic assumptions of the Budget seem to be in order. First, the Budget math assumes a 10% nominal growth, up from 8% in FY26. This is likely to be beneficial from the perspective of tax collections, that heavily depend on the nominal growth of the economy.

The fiscal consolidation strategy also stays intact despite challenges towards allocating more funds for States under the Finance Commission. After sticking to the target of 4.4% for FY26, the Budget targets 4.3% Gross Fiscal Deficit as % of GDP. The borrowing programme of the Central Government is a tad on the higher side at Rs 17.2 trillion but should be manageable as we anticipate the RBI to continue with its OMO purchases of Government Securities to support banking sector liquidity.

Potential of financial reforms

The Budget talks of building up a robust and resilient financial sector as one of its objectives. The importance of this lies in mobilizing savings and allocating capital efficiently and managing risks. The Budget announces the setting up of a “High Level Committee on Banking for Viksit Bharat” to review the sector and align it with India’s next phase of growth. While there are no concrete steps laid out, there is a proposal to review the Foreign Exchange Management (Non-debt instruments) Rules, to enable a user-friendly framework for foreign investments. The Budget targets to create more depth in the corporate bond market and envisages to kickstart issuance of higher value municipal bonds by placing an incentive of Rs 100 crore for a single bond issuance of more than Rs 1000 crore.

These announcements are in line with the concerns placed in the Economic Survey that India suffers from high cost of capital due to relatively shallow corporate bond markets, limited institutional investor depth, and regulatory restrictions on capital flows.

Skilling initiative

The Budget speaks of the government’s decision to place a renewed emphasis on the services sector to provide a pathway to fulfilling the aspirations of a youthful India. Towards this objective, the Budget announced the setting up of a “Education to Employment and Enterprise” Standing Committee to prioritize areas to optimize the potential for growth, employment and exports.

Boost for data centres

Further, to attract global investments in data centres into India, a tax holiday was provided to the sector till 2047 to foreign companies that provide cloud services to customers globally by using data centres services from India.

Apart from the services sector, there was a focus on legacy industries whereby the Budget proposes the scaling up of manufacturing in “7 strategic and frontier sectors”, that is sought through a push to the semiconductor industry through India Semiconductor Mission 2.0 to fortify supply chains, develop technology and skilled workforce and an enhancement in the outlay for the Electronics Components Manufacturing Scheme (launched in April 2025). The Budget also envisages to boost production of high value and technologically advanced Construction and Infrastructure Equipment (CIE).

Potential of a rare earth corridor

An underlying theme in the Budget was also to create self-reliance for the Indian economy from the vagaries of global supply chain challenges. The semiconductor and electronics manufacturing, and CIE serve this purpose. Further, there was a thought process for developing self-reliance in Rare Earth minerals. A scheme for Rare Earth Permanent Magnet was launched in November 2025 and the Budget now proposes to support the mineral-rich States to establish dedicated Rare Earth Corridors to promote mining, processing, research and manufacturing.

The Budget also attempts to address the strains at the labour-intensive sectors due to the US tariffs. Importantly, there is an attempt to promote globally competitive and sustainable textiles and apparels through capital support for machinery and technological upgradation of traditional clusters. The other area that has found significant mention is MSME-focused measures – the Budget provides for an equity support to the SMEs via a dedicated Rs 10,000 crore SME Growth Fund and also announces important measures under the TReDS – (a) making it a transaction settlement platform for all purchases from MSMEs by CPSEs and (b) TReDs receivables can be used as asset-backed securities to enhance liquidity and settlement of transactions.

Development is a continuous process

Overall, India’s development process is not just about a single Budget. It remains a process whereby the attempt of the government will have to be on continued structural reforms with a critical focus on employment generation, skill redevelopment, harnessing technological developments and making domestic manufacturing productive, create value within the agriculture sector etc. On all these counts, the Budget scores a high mark that should enable the economy to achieve a sustainable 7% growth and also push for higher growth trajectories in the medium-term.

(Prashant Kumar is Managing Director & CEO, YES BANK.)

Views are personal and do not represent the stand of this publication.