Budget 2026 decoded: Where the money goes, where the risks remain

Subscribe to enjoy similar stories. Despite tighter fiscal headroom, the government has largely stayed the course on public spending, leaning on targeted interventions rather than across-the-board expansion. The Budget prioritises capital expenditure, manufacturing, healthcare and MSMEs, while pushing a larger share of investment responsibility to states and betting on reforms and asset sales to support growth.

Here's a closer look at Budget 2026’s choices, trade-offs and growth priorities. Despite the fiscal constraints, the thrust on public spending remains. The Budget allocated ₹12.2 trillion ( ₹11.2 trillion in FY26) for capex, which, at 3.1% of the gross domestic product (GDP), is the same as last two years.

Its hesitance to raise allocation is understandable, since ₹25,335 crore of last year’s allocation was unspent. However, the Centre increased by ₹1 trillion the funds available to the states through interest-free 50-year loans, taking the effective capex to 4.4% of GDP. As expected, the government met its fiscal deficit target of 4.4%, despite a ₹78,086 crore revenue shortfall.

On account of low inflation, the nominal GDP growth at 8% was much lower than 10.1% assumed in the FY26 budget. This, apart from tax cuts, lowered tax revenues. Higher dividend from the Reserve Bank of India and some trimming of expenditure helped.

For FY27, it has budgeted a fiscal deficit of 4.3%, maintaining the declining trend since the pandemic. Last year, the government said it will ensure that debt as a share of GDP is on a declining trend every year. It also said that by FY31, it will reduce its debt to 50% of GDP or less.