OPINION | What to Expect from India’s Budget 2026: Insights from the Economic Survey

The Budget is likely to consider expanding and strengthening export promotion missions.

India’s Economic Survey aims to deliver a comprehensive, data-driven assessment of the economy's performance. Its significance lies in serving as a policy blueprint that flags key challenges and reform priorities to inform Budget decisions and signal government thinking to investors.

As expected, external challenges occupy considerable space in the latest Economic Survey—understandably so, amid escalating geopolitical tensions, no respite from Trump tariffs, and a weakening rupee (down 6.5% since April 2025) amid volatile capital flows that are roiling the country’s stock market.

Some highlights of the Survey

The other major concerns highlighted by the Survey include the high cost of capital, underperformance of manufacturing and its limited integration with global value chains (GVCs), state-level fiscal populism, unbalanced use of agricultural inputs and low farm productivity, urban governance and stressed urban infrastructure, along with issues related to unemployment and public health.

The Survey argues that the world is shifting toward a phase of “managed disorder,” where trade policy is increasingly shaped by “security considerations” rather than “cost efficiency.” Coercive trade measures are replacing commitment to multilateral trade rules, leading to a realignment of supply chains. In India’s case, services trade surpluses and remittances are insufficient to offset large merchandise trade deficits. As a result, India depends on foreign capital inflows to maintain a healthy balance of payments, and any disruption in capital flows affects rupee stability and investor confidence.

It further argues that India’s high cost of capital is a structural outcome of persistent current account deficits and dependence on foreign savings. Reducing this cost durably requires transforming India into a “surplus-generating economy” through export-led growth and deeper integration with production networks. While services have been the mainstay, they are not a substitute for a robust “goods-based export ecosystem”. India needs to move from mere “strategic resilience” to “strategic indispensability” by becoming an essential, non-substitutable node in global value chains.

What can be expected in the Union Budget

Against this backdrop, the following can be expected from the upcoming Union Budget on Sunday:

# The Budget is likely to emphasise the importance of free trade agreements (FTAs) in boosting exports and reiterate its commitment to expediting pending trade deals, especially the one with the US. To support manufacturing competitiveness and goods exports, further rationalisation of import duties is expected to address what is called the inverted duty structure—higher duties on raw materials and intermediates and lower duties on finished goods. Lowering duties on key industrial inputs, such as textile fibres, is expected to reduce production costs for downstream industries. Further withdrawal or rationalisation of Quality Control Orders (QCOs) that make it difficult to source inputs may also be announced.

# We can also expect expansion of the Production Linked Incentive (PLI) scheme to more industries to boost exports and support job creation. As the Survey argues that the key to rupee stability lies in exports, the Budget is likely to consider expanding and strengthening export promotion missions, along with increased export incentives for labour-intensive industries badly affected by Trump’s tariffs. Export facilitation measures, including further rationalisation of customs rules and regulations, can be expected.

# Rising revenue deficits and unconditional cash transfers by states pose risks by “crowding out growth-enhancing capital expenditure”. This fiscal indiscipline at the state level increasingly affects the cost of sovereign borrowing. Therefore, Budget 2026 may further strengthen the Special Assistance to States for Capital Investment (SASCI) framework, perhaps by introducing stricter performance-linked conditionalities that reward states for reducing revenue deficits while maintaining capital expenditure.

# Proposals to deepen the corporate bond market—reducing reliance on bank-led debt and lowering the cost of capital for firms—are expected to boost private capex. Some announcements to assure foreign investors on tax certainty are also likely. However, given fiscal constraints, the government is unlikely to reduce or remove long-term capital gains tax that may not be liked by the country’s financial markets.

# Indian crop yields continue to trail global averages due to technological and climatic constraints, as highlighted by the Survey. A major challenge is the distorted N:P:K fertiliser ratio, driven by excessive urea use, which is degrading soil health and lowering productivity. To restore soil health and boost farm output, the Budget may consider a phased re-engineering of the fertiliser subsidy programme.

Conclusion

Taken together, the Economic Survey sets out a clear diagnosis of India’s structural constraints and the reform direction needed to sustain growth in an increasingly fragmented global economy. Budget 2026 is therefore likely to prioritise export competitiveness, lower the cost of capital, reinforce fiscal discipline, and address long-standing productivity challenges across manufacturing and agriculture. The credibility of the Budget will ultimately rest on whether it can translate the Survey’s strategic intent into concrete, implementable policy actions.

(Ritesh Kumar Singh is a business economist and CEO, Indonomics Consulting Private Limited. His X account @RiteshEconomist.)

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