NEW DELHI (AP) – On Sunday, Prime Minister Narendra Modi’s government unveiled its annual budget to Parliament, emphasizing the need to sustain the country’s economic growth amidst volatile financial markets and trade uncertainties. In her address, Finance Minister Nirmala Sitharaman outlined the government's strategy to boost investments in infrastructure and domestic manufacturing, while adhering to fiscal prudence.
The budget pertains to the 2026-27 financial year, starting April 1, and arrives at a time when significant economies are wrestling with high interest rates, geopolitical tensions, and renewed protectionism that have negatively impacted global trade and capital flows. India has currently managed to navigate high tariffs imposed by the U.S. by frontloading certain exports and diversifying its shipment destinations.
According to the finance ministry's economic survey released prior to the budget, India's economy is projected to grow between 6.8% and 7.2% in the forthcoming fiscal year, buoyed by increasing domestic consumption. Despite intentions for higher spending in key sectors, the government has reaffirmed its commitment to fiscal consolidation, targeting a fiscal deficit of 4.3% of GDP for the next year, slightly better than the anticipated 4.4% deficit for the current fiscal year ending in March.
Key highlights of the budget include:
No Populist Giveaways; Focus on Structural Reforms
In her speech, Sitharaman made it clear that the government would not implement populist giveaways, opting instead to focus on building resilience within the economy and securing a more prominent position in the global supply chain. Last year’s budget had provided considerable tax cuts to the salaried middle class, following Modi’s substantial victory in the national elections. “India will continue to take confident steps towards Viksit Bharat (Developed India), balancing ambition with inclusion,” Sitharaman stated, expressing a commitment to structural reforms primarily in the manufacturing sector, while also increasing investments in niche industries such as biopharma and artificial intelligence.
Manufacturing and Supply Chain Resilience
The budget projects a capital expenditure of 12.2 trillion rupees ($133 billion) for the upcoming fiscal year, primarily directed towards infrastructure, an increase from the 11.2 trillion rupees allocated the previous year. This comes amid advanced economies that are scaling back public investments due to excessive debt and tightened monetary policy. India intends to utilize state spending as a mechanism to stimulate growth.
Sitharaman elaborated on plans to enhance manufacturing in seven strategic sectors including biopharma, semiconductors, electronic components, and rare earth magnets. To diminish reliance on imports, the establishment of three chemical production parks was also announced. Acknowledging global apprehensions surrounding slowing job creation, especially within manufacturing, the budget proposed additional credit support as well as a growth fund for micro, small, and medium enterprises.
Financial Market Reforms to Attract Capital
The Finance Minister outlined measures to deepen India’s financial markets, emphasizing enhancements to the corporate bond market and the relaxation of certain rules for foreign investors. Given the increasing selectivity of global capital, driven by higher interest rates in Western economies, emerging markets are vying for stable and long-term investments. She proposed a comprehensive review of the Foreign Exchange Management (Non-debt Instruments) Rules to craft a modern, user-friendly framework aligned with India’s evolving economic priorities.
Budget Promises Rail Development
Sitharaman also announced plans for environmentally sustainable travel with the introduction of seven high-speed rail corridors linking major cities, such as Mumbai-Pune and Hyderabad-Bengaluru. For cargo movement, an unspecified number of new dedicated freight corridors will be established, alongside operationalizing 20 new waterways over the next five years. Additionally, dedicated freight corridors will facilitate rare earths to enhance mining, processing, research, and manufacturing activities.
Moreover, the government intends to create ecologically sustainable mountain and coastal trails to promote ecological tourism, reflecting a multifaceted approach to economic and environmental challenges.
In conclusion, the budget presents a blend of targeted investments and reforms as the government navigates a complex economic landscape, aiming for sustainable growth while reinforcing structural foundations.
