India’s budget doubles down on a tried and tested formula—with debt reduction as a distant target

Subscribe to enjoy similar stories. India kept calm and carried on this fiscal year, with a GST spur for retail offtake, an urgency for foreign trade deals and a few tariff tweaks for factory-cost relief making up the bulk of our response to trade adversity. That spirit prevails in India’s budget for 2026-27 too.

It marks a shift in fiscal policy from annual deficit calibration to medium-term debt reduction. Finance minister Nirmala Sitharaman’s last budget offered a tax stimulus, kept up infra spending and managed to squeeze the Centre’s deficit to 4.4% of GDP even as nominal growth softened. Ever since covid, capex has played a heroic role in the economy’s expansion.

The latest budget dares not depart from that formula. Its ₹12.2 trillion capex plan is almost 23% of its ₹53.5 trillion expenditure pie, a notable increase. Other stand-out allocations include those for our chip-making mission, a bio-pharma thrust and a carbon-capture initiative.

Next year’s deficit is pegged at 4.3%. Achievable even if an inflation uptick fails to lift revenues as expected, this would count as progress towards reducing central debt to half the size of our economy by 2030-31. Yet, two questions arise.

First, could a five-year debt path lull us into fiscal complacency over the effects of, say, a sharp revival at some point in private demand and investment? And second, is it not time to extend the budget’s horizon and pivot heavily towards health and education? As for buffers against trade flux, the budget’s proposals are in the right direction—with customs relief in focus. Import-duty exemptions span inputs for sectors on a priority list. Import barriers for making aircraft, setting up nuclear power plants and processing critical minerals