OPINION | India at an Inflection Point: Budget 2026 and the road ahead

India cemented its position as the fastest-growing major economy globally

China’s high-speed rail network, AI-driven enterprises, electric vehicle adoption, and innovation ecosystem are unparalleled. During my recent visit to Beijing for the Asia Meeting of the Trilateral Commission, I was struck by the sheer scale at which China operates. My visit coincided with the launch of China’s 15th Five-Year Plan—not merely a policy document, but a long-term blueprint that has provided the country with strategic direction and consistency over several decades.

This experience compelled me to reflect on India’s growth trajectory at a moment marked by both opportunity and uncertainty.

India at an Inflection Point

With the United States imposing higher tariffs on Indian goods and domestic unemployment continuing to rise, the upcoming Union Budget assumes particular significance as India pursues its ambition of achieving developed-nation status by 2047.

Over the past year, India has delivered a strong macroeconomic performance, emerging as the world’s fourth-largest economy. In 2025, India cemented its position as the fastest-growing major economy globally, crossing the USD 4 trillion GDP mark and recording quarterly growth between 6.6% and 8%.

Much of this momentum has been driven by robust domestic demand. Private consumption grew by around 7%, supported by the simplification of tax laws under the new Income Tax Act, 2025, and personal income-tax relief that rendered income up to ₹12 lakh tax-free for many individuals.

Retail activity reflected this confidence. FMCG volumes surged, and festive-season sales reached a record ₹6.05 lakh crore (approximately USD 68.8 billion), marking a 25% increase over the same quarter in 2024. The Reserve Bank of India’s upward revision of FY26 GDP growth to 7.3%, from an earlier estimate of 6.8%, further underscores India’s structural resilience.

External Pressures and Labour Market Challenges

However, this strength masks several asymmetries that demand attention in the upcoming Union Budget. Externally, risks have intensified. President Trump’s decision to double tariffs on select Indian exports—raising duties on textiles, chemicals, and agricultural products such as shrimp to as high as 50%—has placed pressure on India’s trade balance. While New Delhi and Washington continue negotiations, uncertainty persists.

Domestically, the labour market remains a key concern. India’s unemployment rate averaged between 7% and 8% in FY 2025, with youth unemployment remaining particularly high. Despite rapid innovation and AI-driven digitisation, technology adoption has yet to translate into large-scale job creation.

Compounding these pressures, the rupee weakened significantly during FY 2025, touching ₹90 per US dollar in December—the lowest level in its history. This depreciation has increased import costs, particularly for energy and raw materials, affecting MSMEs and fuelling inflationary expectations.

MSMEs, Consumption, and Energy Security

The upcoming budget, to be presented by the Hon’ble Finance Minister Nirmala Sitharaman, must therefore deepen reforms that support growth while addressing these vulnerabilities. A significant opportunity lies in modernising India’s MSME sector, particularly in Tier-2 and Tier-3 cities, where the next wave of productivity gains can emerge. Incentives for digital onboarding, AI-enabled productivity tools, improved logistics infrastructure, and cluster-based financing can unlock this potential.

Strengthening consumption will be equally critical. Carefully calibrated tax adjustments can ease household burdens and stimulate urban discretionary spending. The middle class, in particular, will remain central to sustaining domestic demand. At the same time, India’s external stability depends on realistic crude-oil assumptions, given the country’s 88% dependence on energy imports.

Towards a High-Growth Decade

In light of these macroeconomic and structural realities, there is a compelling case for India to reinforce its path of self-reliance while energising its private sector. If executed effectively, this budget can lay the foundations for a high-growth decade and mark a decisive step towards India’s vision of becoming a developed economy.

(Archish Mittal is a Special Advisor at Iron Pillar, a leading growth equity fund focused on investing in technology companies from India.)

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