In a definitive response to a fracturing global order, Finance Minister Nirmala Sitharaman presented a Union Budget that prioritises resilience over raw speed
The Union Budget 2026-27 marks a strategic departure from the aggressive expansionism of previous years, opting instead for a “Fortress India” approach. Tabling her ninth consecutive budget, Finance Minister Nirmala Sitharaman focused on core duties to sustain economic growth while managing the fallout from a volatile geopolitical landscape. With a real GDP growth projection of 6.8 to 7.2 per cent, the government is signalling that while India remains a global outperformer, the era of easy growth has been tempered by global reality.
This fiscal roadmap is being framed against the backdrop of recent discussions at the World Economic Forum in Davos, where India was highlighted as a stable driver of growth. However, the budget also acknowledges the subtle warnings from international indices regarding India’s global competitiveness. These reports suggest that while India’s infrastructure is improving, the cost of doing business remains a significant drag on the nation’s potential. The 2026-27 fiscal plan is therefore a deliberate attempt to use fiscal discipline as a tool to sharpen India’s edge on the world stage.
Sustaining the infrastructure push amid fiscal consolidation
The government has committed to a record capital expenditure of 12.2 lakh crore rupees for FY27, representing 3.1 per cent of the GDP. This continued reliance on public investment is designed to “crowd in” private capital at a time when global corporate boardrooms remain hesitant. By operationalising 20 new waterways and 7 high-speed rail corridors, the state is seeking to reduce logistics costs that have historically hampered India’s global competitiveness.
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Despite the massive spending, the government has refused to abandon its path of fiscal prudence. The fiscal deficit is budgeted to fall to 4.3 per cent of the GDP in FY27, down from 4.4 per cent in the previous year. This narrow reduction suggests that the government is finding it increasingly difficult to cut the deficit further without choking off the very growth that sustains the country’s economic standing.
Manufacturing and the shift toward sovereign AI
One of the most significant pivots in this budget is the launch of the India Semiconductor Mission 2.0. With an expanded Electronics Components Manufacturing Scheme featuring an outlay of 40,000 crore rupees, the move is a direct response to the global trend of “friend-shoring.” By establishing “Rare Earth Corridors,” India is positioning itself as a critical alternative to Chinese manufacturing hubs, which is a vital component of its long-term global competitiveness.
The budget also introduces a sovereign AI framework, treating artificial intelligence as a national utility rather than a private sector luxury. This includes tax holidays for data centre services until 2047, aiming to make India the global back-office for the coming AI age. These measures are designed to improve India’s innovation standings, where the country currently leads in ICT exports but needs more investment in Research and Development to maintain its global competitiveness.
The tax regime and the new normal for households
For the average citizen, the budget brought a mix of relief and status quo. While there were no changes to income tax slabs, the implementation of the Income-tax Act, 2025, aims to simplify compliance for millions of taxpayers. The government has instead focused on indirect relief, such as rationalising GST on small cars and agricultural goods, to spur domestic consumption, which is a bedrock of the nation’s overall global competitiveness.
This strategy relies on the fact that headline inflation has moderated to a sharp 1.7 per cent. By keeping the cost of living stable, the government hopes to maintain social harmony while it executes difficult structural reforms. The introduction of the “Corporate Mitra” cadre to assist MSMEs further illustrates a shift toward trust-based governance, moving away from the “inspector raj” that has long acted as a barrier to India’s global competitiveness.
The Hinge Point
The 2026-27 Budget marks the moment when the Indian state stops trying to please the global market and starts trying to survive the global storm. This is the hinge point because the fiscal math has shifted from a focus on “transformation” to “insulation.” The story changes here because the government has accepted that global competitiveness is no longer just about lower taxes or higher growth, but about having the most resilient, vertically integrated supply chain in an era of trade wars and tariffs.
What can no longer remain the same is the reliance on unbridled capital expenditure to drive the economy. By slowing the pace of fiscal consolidation to preserve growth, the government is admitting that the private sector is not yet ready to take the lead. This budget marks the end of the post-pandemic rebound era and the beginning of a long-grind era, where India must protect its 7 per cent growth as a matter of national security, knowing that the rest of the world is falling behind.