By Ajit Banerjee, President and Chief Investment Officer at Shriram Life Insurance
The Union Budget for fiscal year 2026 will outline the Union government’s plans on steering the economy and managing its finances for FY25-26, focussing on recharging the growth drivers while adhering to the principles of fiscal consolidation and prudence. Economic policymaking must always reckon with uncertainty. However, there are times when the quantum of uncertainty is more acute, like few years back during the Covid-19 period.
Similarly, this time, the uncertainty is of altogether different nature. It’s very hard to predict how the US president Donald Trump will proceed with his plan and how other impacted countries will respond. The world is also quite keen to see how he would handle the Ukraine-Russia, Middle East-Israel crisis and the periodic Chinese threat on Taiwan. The only certainty seems to be that the world economy has to brace for more shocks.
Amid slow GDP growth coupled with high inflation, modest fiscal support and monetary policy easing would be quite crucial to support India’s GDP growth in FY26, given global uncertainty and risks from an impending tariff war. The government should frontload capex, particularly in roads and railways, and implement measures to support MSMEs and employment-linked incentives.
A prolonged capex cycle is needed to sustain strong economic growth. This would also incentivise the private sector to start capacity expansion, raising long-term funds through bond markets with support from insurance and pension funds.
Secondly, there is a massive need to generate employment in both the government and private sector. The government should continue last year’s employment/internship schemes, provide a progress update, promote automation of manufacturing and service sector activities, and assign orders to cottage, handicraft and other capital-intensive sectors to better absorb semi-skilled and unskilled labour.
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Third, discussions are ongoing about the statistical retention or exclusion of food in the CPI numbers, but the bigger issue is a projected 6-10% decline in India’s rice and wheat output due to the impact of climate change. This, along with climate-related disruptions like delays in monsoon, prolonged summers or winters, or an extended monsoon, is leading to a food supply and demand imbalance, and food inflation. This could have far-reaching consequences for farmers and food security, requiring urgent attention from government and other stakeholders.
Fourth, amid the ongoing slump in economic growth and high living costs and medical expenses, the government should revise tax rates in a more pragmatic way to revive urban consumption.
Lastly, the government should permit separate tax exemption limits for term insurance, to encourage more families to have adequate life coverage. Higher coverage will help minimise the protection gap.
Separately, the affordability of insurance products remains a major challenge, particularly for low-income groups. The existing 18% GST on premiums acts as a deterrent. Reducing the rate will make insurance products more affordable, directly benefiting policyholders and increasing insurance protection.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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