THE finance minister Ms Nirmala Sitharaman presents her ninth budget for the financial year 2026-27 with an estimated GDP of the economy pegged at Rs 393 lakh crores, 10 per cent higher than the GDP of Rs 357 lakh crores estimated for the current financial year. Before the budget, the Ministry of Statistics and Programme Implementation released the First Advance Estimate of GDP for the year 2025-26 on January 7, 2026 and the Economic Survey 2025-26 was tabled by the Chief Economic Advisor V Anantha Nageswaran on January 29. All these documents together with the budget speech and budget documents present the state of the Indian economy for the current financial year 2025-26 and the proposals on fiscal policy of the government for the financial year 2026-27.

The Survey estimates a real GDP growth of 7.4 per cent and a nominal GDP growth of 8 per cent in the current fiscal year implying an implicit inflation of as low as 0.6 per cent. The growth rate is undoubtedly the fastest in the world and the medium-term growth rate is also quite impressive estimated as 7 per cent. The Economic Survey acknowledges prevailing uncertainty and trade disruptions in the global scenario and the potential challenges for the economy particularly in gearing up private investment, increasing state and institutional capacities and upskilling the labour force to leap forward towards high-tech manufacturing and other technological advancements. It is generally expected that the budget would act upon the challenges identified in the survey and the concerns the economy is currently facing namely private corporates’ low appetite to invest, low private share of R&D expenditures in Indian industries, moderating inequality and expanding provisions of health and education to upskill and generate adequately healthy and competent labour force. The low inflation rate, in fact a deflationary situation reflected in a low nominal growth rate compared to the past may slow down investment and production due to expectations of lower returns and reduce government revenue and increase real debt. According to government estimates, nominal growth rate in current prices in the primary sector including agriculture and mining turned out to be 0.2 per cent which is lower than the real growth of 2.7 percent in this sector at constant 2011-12 prices, reflecting deflation.

State of the Economy

The First Advance Estimate and the Economic Survey estimate real Gross Value Added (GVA) growth higher than the previous financial year FY 2024-25 in case of manufacturing and services while growth have been lower in agriculture and Allied sectors, utilities that is Electricity, Gas and Water Supply and Construction. Agriculture accounts for 15.2 per cent of total GVA and manufacturing accounts for 12.8 per cent, which means that India continues to depend on services sharing 51.1 per cent of GDP. The growth of manufacturing has increased in the current fiscal year marking a 7 per cent growth higher than previous year’s 4.5 per cent while mining sector records a contraction and agricultural growth has fallen from 4.6 per cent in the last fiscal year to 3.1 per cent in the current year. The services sector in the aggregate grows at 9.1 per cent with finance, real estate & professional services and public administration, defence and other services recording a growth of 9.9 per cent.

On the demand side, private final consumption expenditure that accounts for 61.5 per cent of GDP grew at 7 per cent and gross fixed capital formation sharing 30 per cent of the GDP grew at 7.8 per cent in FY 2025-26. The Survey highlights the decline in FDI inflows in India and the global trend of FDI flowing towards high-tech sectors. In case of India, the gross expenditure on R&D as a percentage of GDP stands at a low 0.64 per cent which is 3.48 per cent in the case of US, 2.43 in China and 4.91 in South Korea. Private investment in innovation is still very low. The private sector accounts for only 41 per cent of total R&D expenditure in India. In China, the contribution of the private sector in R&D expenditure is 77 per cent, in the US 75 per cent and in Korea 79 per cent. This shows that India’s private corporates despite getting favours from the government are largely risk averse and shirk investing in innovation. This is also reflected in the recent world innovation index published by the World Intellectual Property Organisation which is a combined index of 78 parameters. According to the latest report, the world’s three most innovating countries out of 133 are Switzerland, Sweden and the US. China’s rank by innovation index is 11 and India’s 39. Though the Chief Economic Advisor referred to Mariana Mazzucato’s idea of an ‘entrepreneurial state’ suggesting state’s active participation in high-tech productive activities where the private sector fails, he hardly talked about disciplining the industrial class who could not deliver despite pro-capital reforms undertaken in the past three decades.

Budget 2026-27

It is not surprising that the budget failed to address any of the key issues that the economy is currently facing. According to the budget figures, the government realised Rs 1.6 lakh crores less tax revenue net to centre in the revised estimate compared to the budget estimate for 2025-26. But the government being committed to keep fiscal deficit at 4.4 per cent of GDP in the name of ‘fiscal prudence’ drastically cut down expenditures that affect the common people. Revenue from income tax fell short by Rs 1.26 lakh crores from the budget estimate and in GST the realisation fell short by Rs 1.31 lakh crores. This revenue loss was partly compensated by customs and excise duties but the revenue shortage together with the fiscal deficit target has led to a deep cut in centrally sponsored schemes by Rs 1.21 lakh crores. The expenditure cuts in these schemes do not hurt the well-to-do and the rich, it is the poor and the working people who have to suffer for this reduction in expenditure. For many expenditures heads the budget allocation of FY 2026-27 is either the same or marginally higher than the already reduced revised estimates of FY 2025-26.

In Rashtriya Krishi Vikas Yojana -- Rs 1,500 crores, PM POSHAN- Rs 1,900 crores, PM SHRI- Rs 3,000 crores, PM Awas Yojana Urban- Rs 12,294 crores, PM Awas Yojna Rural- Rs 22,332 crores, Ayushman Bharat (PMJAY)- Rs 406 crores and Ayushman Bharat Health Infrastructure (PMABHIM)-Rs 1,757 crores had been cut down in the revised estimates in the current financial year compared to the allocation of the last budget. Apart from these schemes, expenditures on heads of Agriculture and Allied, Education, Heath, Rural Development and Social development have been reduced. The budget proposes a reduction in expenditure on MNREGA to Rs 58,000 crores and allocates Rs 95,692 crores for the new VB-GRAMG scheme. However, since employment is no longer guaranteed as a right and 40 per cent of the expenditure to be spent in the new scheme has to come from the state governments most of which are already cash strapped due to low GST revenue realised, the actual expenditure on employment scheme is likely to be less than the amount budgeted.

The budget pays no heed to the fact of rising inequality, underemployment and unpaid work, rising vulnerability of the new workforce in platform-based work underlined in the Survey. The Finance Minister’s speech didn’t resonate with these concerns. It is important to protect incomes of the poor and the working people in the face of extreme vulnerability and situations of rising uncertainty. India’s demographic dividend is expected to peak in 2030 when 65 per cent of the population would fall in the working age bracket. Unfortunately, 44 per cent of the working age population of our country is out of the labour force, which means either they do not work or do not seek to work. A huge mass of ‘discouraged workers’ remain left out as unused labour force when the economy is experiencing fastest growth in the world. Out of those employed, 54.9 per cent are self-employed or work as helper in household enterprises and less than one-fifth of those employed in India are involved in regular salaried jobs. On top of that, technological changes are going to impact production processes across the board demanding higher skills. The budget speech and the allocations for the next financial year hardly reflect that India is gearing up for a big leap.