Budget 2026 | The politics of restraint in an age of expectation

Budget 2026 binds India’s growth to rules, not impulses — a quiet but consequential shift

Budgets are often judged by what they announce. The Union Budget for 2026-2027 deserves attention for what it restrains.

At a time when global uncertainty persists, and domestic expectations remain high, the Budget resists the temptation of fiscal spectacle. Instead, it signals a quieter shift in India’s economic governance — from discretionary spending toward binding rules. This is not immediately visible in headline schemes, but becomes evident when read alongside Budget 2024 and Budget 2025.

Over three consecutive years, fiscal consolidation, regulatory reform, and targeted industrial policy have moved from intent to institutional commitment. For a large developing economy, this shift matters. It suggests that growth will increasingly be mediated by constraints — fiscal, regulatory, and institutional — rather than by annual expansionary impulses.

The most consistent thread across the three Budgets is fiscal discipline. In Budget 2024, the fiscal deficit stood at 4.9% of GDP, accompanied by a pledge to bring it below 4.5% in subsequent years. That promise was honoured in Budget 2025, when the deficit was budgeted at 4.4%. Budget 2026 lowers it further to 4.3% and explicitly anchors policy to a debt-to-GDP target of 50 ± 1% by 2030-2031. This matters because it narrows future policy choices.

Public investment can no longer expand without corresponding efficiency gains or private participation. For India, this marks a transition from fiscal repair to fiscal governance, where credibility becomes as important as capacity.

Public capital expenditure remains central, but its role is evolving. Capital outlay has risen steadily — from ₹10.18 lakh-crore in 2024-2025 to ₹11 lakh-crore in 2025-2026, and ₹12.21 lakh-crore in 2026-2027. Earlier Budgets framed this as a demand stimulus and crowd-in strategy. Budget 2026 reframes it as a risk-managed investment programme, introducing mechanisms such as infrastructure risk guarantees to attract long-term finance. This shift acknowledges that in a developing economy, financing constraints and regulatory uncertainty increasingly limit infrastructure outcomes more than budgetary intent alone. The emphasis is less on spending more, and more on spending in ways that unlock private capital.

Regulatory reform forms the second binding pillar. Budget 2024 focused on rationalisation — simplifying customs duties, expanding GST coverage, and strengthening digital public infrastructure. Budget 2025 advanced this agenda through the Jan Vishwas Bill 2.0, decriminalising over 100 provisions, and proposing a High-Level Committee for Regulatory Reforms. Budget 2026 consolidates these efforts, stressing trust-based governance, faster clearances, and alignment of financial regulation with growth objectives. Read together, these measures aim to reduce regulatory risk premiums that have historically deterred investment in developing countries. The emphasis is not on fewer rules, but on more predictable ones.

Industrial policy, too, has become more selective. Budget 2024 supported manufacturing broadly through tariff rationalisation and sector-wide incentives. In Budget 2025, attention shifted toward MSMEs, exports, and investment facilitation. Budget 2026 narrows the focus further, identifying strategic sectors such as semiconductors, biopharma, electronics, and advanced materials, supported by targeted schemes including Biopharma SHAKTI and the India Semiconductor Mission 2.0. This reflects a move from horizontal support to capability-building. For developing economies, such selectivity can be productive if accompanied by accountability, but costly if governance capacity falls short.

Perhaps the most telling aspect of Budget 2026 is its restraint on the social sector. While earlier Budgets allocated significantly to education, skilling, and welfare during the recovery phase, recent allocations emphasise continuity, targeting, and efficiency rather than expansion. The implicit assumption is that growth, supported by fiscal discipline and regulatory reform, will sustain future social investment. Whether this holds will depend on execution.

Budget 2026 does not promise transformation; it seeks to bind policy to rules. For India, and for other developing economies watching closely, that choice may prove more consequential than any headline announcement.

Debdulal Thakur is professor and dean, Vinayaka Mission’s School of Economics and Public Policy, Chennai. Shrabani Mukherjee is a Chennai-based independent researcher in economics and public policy.

(Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH)