Union Budget 2026-27: A Road to Nowhere

The finance minister’s longish speech after the longest Economic Survey 2026 is puzzling to say the least. The Economic Survey after arguing that the economy is in a Goldilocks moment flagged the many challenges that it faces. These are little different from what the critics have been pointing to for the last many months. In a sense there is consensus as to the challenges that need to be addressed.

The Union Budget was the right vehicle for addressing them. That is what a budget is supposed to do. Take care of the problems plaguing the economy currently and provide solution to challenges that may develop. But the current budget does neither. It is long on promises but not on action that is needed. Why does the budget miss this opportunity? Is it because of a lack of clarity or a deliberate choice to let things drift?

The issues facing the economy are both external and internal. Not only world trade is disturbed, capital flows into India have declined thereby weakening the balance of payments and devaluing the rupee vis-a-vis the dollar. This raises the inflationary pressure. And, the uncertainty that has followed has further weakened the investment sentiment of Indian investors. The problems with exports threatened by Trump’s protectionist tariffs have aggravated the demand problem in the economy which was causing a slowdown of private investment.

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Inadequate demand has been caused by the rising inequality which in turn is a result of the growing gap between the organised and the unorganised sectors of the economy. The little growth in the economy is largely cornered by the organised sector and the well-off in the country leaving hardly anything for the marginalised sections – farmers, workers, women and educated youth.

The Union Budget had a clear choice – continue on the path being followed or change the policy of boosting the organised sector to promoting employment generation in the unorganised sector. That would raise incomes of the marginals and demand in the economy would pick up.

Given that in the present global scenario exports and foreign investment are uncertain, the focus needs to shift to the internal market. That would require government helping enhance demand and pursuing more equitable policies.

Demand issue

For boosting demand the budget should have increased expenditure as a share of the GDP. But, this is estimated to be 13.6% in 2026-27 compared to 14.2% planned in 2025-26 and 14.3% in 2024-25. The next item for boosting demand is the primary deficit which is also slated to decline to 0.7% compared to 0.8% in 2025-26 and 1.4% in 2024-25. So, no additional boost from either of these.

Agriculture is the largest employer and where the largest number of poor are located. It needed a boost. In the current year, expenditure on agriculture and allied activities has been cut from an estimated Rs 1,58,838 crore to Rs 1,51,853 crore. For the next year it is increased only by about 2% which barely covers inflation. For rural development, Rs 2,65,817 crore was planned but expenditure is likely to be Rs 2,12,750 crore – 20% less. For next year it is raised to Rs 2,73,108 crore – 3% more.

These cuts also reflect in specific schemes. For instance, in the Jal Jeevan scheme instead of Rs 67,000 crore only Rs 17,000 crore is to be spent. For housing scheme (PMAY) instead of Rs 54,832 crore, Rs 32,500 crore is being spent. Like this, for dozens of centrally sponsored schemes and major central sector schemes, allocations are made but expenditures are less. Then again for presenting a glowing picture of the government, provisions are increased but not spent.

All this reflects in lower allocations for the unorganised sector and that is where employment and incomes are lacking and which leads to demand shortage in the economy. Clearly, this sector is accorded a low priority. This is the case in this budget also, in spite of the mention of MSME and support for the micro sector.

Promises not backed by allocations

The budget speech began with self-praise that the economy is doing well. If that is accepted then nothing new or dramatic needs to be done. That is what is visible in the budget. Lots of pronouncements and promises but little action.

There is talk of Atmanirbharta, Yuva Shakti and three Kartavya. This is said to require a supportive ecosystem consisting of ‘momentum of structural reforms, robust and resilient financial sector and cutting-edge technologies, including AI applications’.

But what do all these fine sounding clauses and terms imply. What changes are being made and how much of resources are being allocated to them. This budget is short of funds so for many schemes no resource allocation is mentioned. Like for five university townships, setting up of girls’ hostels, Bharat-VISTAAR scheme or the SHE-Marts.

Mindset change needed

The details of these new schemes are not available. For instance, setting up of universities is a good idea to boost our woeful R&D. But, when the ruling party is destroying our existing good universities through systematic interference in their functioning and starving them of funds for research then can one believe that the new universities will be treated better.

Similarly, given our attitude towards women and girl child, would SHE-Marts help. A mindset change is needed for these schemes to be transformative. How is this mindset change to occur? Not by budgetary announcements. A social change is required but we are moving in a contrary direction.

Paucity of data in the speech is reflected in lack of numbers in part B of the speech also. Taxation proposals are given without numbers. The implications of the large number of tax proposals is not given. How much revenue will be gained or lost is usually given but not in this budget speech.

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Plan for high speed rail corridors has been announced. Our bullet train has been languishing for close to 10 years. The announcement reflects the skewed priorities and mindset. These will be very expensive travel modes like the Vande Bharat sleeper trains whose fares are close to air fares and which can only be afforded by a few per cent of the population.

Presently the general trains transport millions in atrocious conditions. Many more of these general trains are needed but instead elite trains are being proposed for a few. High speed corridors will also make markets in the hinterland accessible to the organised sectors, further damaging the unorganised sectors.

In brief, the Union Budget 2026-27 lacks a clear vision which will neither resolve the current problems faced by the economy nor will it help meet the global challenge ahead.

Arun Kumar is the author of Indian Economy’s Greatest Crisis: Impact of the Coronavirus and the Road Ahead. 2020.

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