The prospect of better returns will overshadow the budget’s securities transaction tax hike

Subscribe to enjoy similar stories. The government’s goal of a Viksit Bharat by 2047 requires India to sustain high growth over a long period of time. Union Budget 2026-27 operates within a framework that India has articulated for itself: of bringing down the government’s debt-to-gross domestic product (GDP) ratio on a sustainable basis.

A lower public debt burden helps reduce pressure on interest rates and government borrowing, thereby freeing up financial resources for the private sector and Indian households. Is it possible for India to target faster growth next fiscal year by raising its expenditure and issuing more debt? Yes it is, and that might be exciting for the equity market in the short-term. Constituents of the economy that benefit from today’s largesse may also welcome such an outcome.

However, this excitement would create a liability that our future generations would have to pay for through higher inflation and taxation. It would also make our macroeconomic position more vulnerable to shocks. As it is, we are dealing with immense shifts in the geopolitical environment and global trade conditions.

In this context, the budget has been pragmatic. The government has articulated its focus on bringing down its debt-to-GDP ratio. It recognizes the elephant in the room, which many are happy not to discuss.

After all, interest payments are the single largest expenditure item for the government. They account for nearly 40% of the Union government’s revenue and capital proceeds (excluding borrowing). Arguing about whether the budget is capital expenditure-focused or revenue expenditure-focused, when the biggest spending item is interest, is to miss the wood for the trees.