India's macroeconomic dashboard is flashing a reassuring green. Quarterly real GDP growth has shown an upward momentum, inflation has been strikingly low, banks are reporting strong profits with low non-performing assets and corporate balance sheets look healthier after a long phase of deleveraging. That surface calm, however, is exactly why this budget needed to be read as a stress test—not as a victory lap.
The ‘Goldilocks’ sheen can be deceptive. Part of the growth impulse is still being carried by the Union government’s capital expenditure push and part of the disinflation owes to food-price softness that can reverse abruptly. There are other signs of worry. The rupee was among the worst performing currencies during 2025 and net inbound foreign direct investment was close to zero. Foreign institutional investors withdrew $17 billion, making India’s stock market performance abysmal in dollar terms, especially in comparison to other emerging markets.
So, Nirmala Sitharaman’s ninth budget is best described as cautious pragmatism: keep the fiscal glide path intact, keep public capex as the growth backstop for now, and plant seeds for capability-building for future growth.
The fiscal deficit is budgeted at 4.3 percent of GDP—within the government’s promised discipline. This discipline matters, not just for textbook prudence, but for credibility in an uncertain world. The most important constraint is the financing environment. Between the Centre’s gross borrowing (budgeted around ₹17.2 lakh crore) and additional state borrowing (around ₹12.6 lakh crore), the bond market is staring at a flood of sovereign and sub-sovereign paper. When the supply of bonds is so large, interest rates can refuse to soften despite the RBI’s heroic easing. Long-term bond yields sticking around 7 percent can become a deterrent to private investment precisely when we need it to take the baton from public capex.
There is a second risk: revenue buoyancy. Gross tax revenues reportedly grew only about 3.3 percent in April-November 2025-26—far below the full-year assumptions. If nominal GDP undershoots, or if consumption remains weak, fiscal arithmetic becomes harder to sustain without cutting the very capex that’s propping up growth. That is the tightrope.
And yet, the budget keeps its capex bias intact: capital spending on infrastructure is budgeted to rise by about 9 percent. This also underlines the core policy question: how long can the State be the ‘default engine’ of growth without crowding out private capex? The answer lies in how to unleash the animal spirits of the private sector.
The world has returned to industrial policy. From semiconductors to clean tech, many governments are openly picking winners. This budget emulates that approach through sectoral nudges and targeted funds—in biopharma, electronic components, rare earth corridors, chemical parks, containers, data centres and carbon capture. The intent is understandable: reduce import dependence in strategic sectors, push domestic value addition and compete in a world less friendly to pure free trade.
But the success of industrial policy is about execution capacity and ecosystem depth—standards, testing, logistics, contract enforcement, skilled technicians, patient finance and predictable regulation. Otherwise, we end up with islands of subsidies rather than continents of competitiveness. The success of production-linked incentives is confined only to a few sectors so far. The more promising idea is the cluster logic: reviving legacy industrial clusters and linking training institutes to sectoral clusters—because competitiveness is built in supply chains, not in single firms.
One of the most forward-looking features is the long-term goal of capturing 10 percent of global tradeable services. The goal covers not just software but also services sectors like content creation, design, tourism, healthcare and medical tourism. Remember that services are increasingly tradeable digitally and this is where India has comparative advantage.
A services superpower is ultimately a skills superpower. Here, the budget’s emphasis on building the pipeline from education to employment and enterprise—through a proposed standing committee—fits the long view.
Another notable move is the provision for city economic regions (CERs)—with an allocation of ₹5,000 crore per CER over five years. If done right, CERs can become engines of productivity by funding core urban infrastructure, mobility and civic capacity—especially in tier-II and tier-III India. We must, however, not forget the sobering lessons of the smart cities programme that has quietly been shut down. The proposed high-speed rail corridors promise to bring firms and workers closer, enhance logistics efficiency and enable commuter lifestyles.
There is not enough in the budget to confront the structural employment paradox—too many workers in low-productivity agriculture, weak mass consumption and wage stagnation. If we want inclusive growth, we need labour-absorbing non-farm growth at scale—micro, small and medium enterprise (MSME) clusters, labour-intensive exports and credible rural non-farm transitions.
Where the budget does well is in the quiet architecture for MSMEs. Working capital constraints and payment delays are silent killers of small firms. Strengthening bill discounting through trade receivables discounting system—and making it the settlement platform for purchases from MSMEs by central public sector enterprises—directly targets liquidity stress where it hurts most. One missed opportunity was to link GST invoicing/filing with Udyam portal to automatically penalise chronic payment delays. This reform would have improved trust and cash flow without large fiscal cost.
The budget is notably restrained on distribution issues: widening inequality, wealth concentration, and the sense of stagnant living standards for many households.
A budget cannot solve everything. But it must at least name the hard problems and lay out a credible medium-term reform path. The most important test of ‘cautious pragmatism’ is whether it can evolve into un-glamorous, high-impact reforms: deepen domestic long-term savings and financial intermediation, and above all make job-rich growth central rather than incidental.
In that sense, the budget respects the fiscal maths and looks to capability-building. The worry is that capability-building without confronting wage stagnation, inequality and private investment hesitancy can start looking like a plan without politics. The opportunity is that, with the right ‘plumbing reforms’, cautious pragmatism can become a bridge to a more private-led, more job-rich, and more trusted growth model.
Ajit Ranade | Economist based in Pune
(Views are personal)