Budget 2026-27 must keep the Growth Momentum

Despite 50% tariffs imposed by the US in 2025, the Indian economy remained resilient. Budget 2026–27 must reinforce reforms as a continuous national mission.

Domestic Levers of Growth

• To sustain growth, India must focus on internal strengths to reduce external dependency.
• The Three Pillars:
  • Capex: Productive Capital Expenditure.
  • Fiscal Consolidation: Controlling the fiscal deficit.
  • De-risking: Avoiding debt traps like those in Sri Lanka or Pakistan.

Priority Areas for Budget 2026–27

• Defence: 
  • Capital Outlay Target: The share of capital outlay in defence should be enhanced to 30% from the budgetary estimate for 2025-26 of 26.4%.
  • R&D Boost: The DRDO budget should be increased by at least ₹10,000 crore to foster innovation.
  • Regional Corridors: While corridors exist in UP and Tamil Nadu, a new Eastern India Defence Industrial Corridor is proposed to tap into the region’s heavy engineering potential.
  • Defence Export Promotion Council: To achieve the target of ₹50,000 crore in exports by 2028-29 and increase private enterprises’ participation in total defence exports, a Defence Export Promotion Council should be established.
• Critical Minerals and Clean-Tech Transition: India needs to reduce its 100% dependency on China for minerals like Lithium and Cobalt
  • Support clean energy, EVs, and semiconductors through secure mineral supply.
  • Strengthen implementation of the National Critical Mineral Mission (2025).
  • Introduce a tailings recovery programme with financing support to extract minerals from mining waste.
• Export Competitiveness: The current budgetary allocation for the Remission of Duties and Taxes on Exported Products Scheme (RODTEP), at around ₹18,233 crore, needs to be significantly increased to make exports more competitive.
• Services and GCC Ecosystem: India has emerged as the world’s leading hub for Global Capability Centres, but its transfer pricing (TP) framework has yet to evolve. 
  • The government may consider issuing clear guidance on acceptable TP models for different categories.
• Drones and Emerging Technologies: There is a need to expand the drone sector by raising production-linked incentive (PLI) from ₹120 crore to ₹1,000 crore.
  • Create a ₹1,000 crore R&D fund to promote innovation and exports.
• Deepening Corporate Bond Markets:  
  • Expand Issuer Eligibility: Lower qualifying borrowing thresholds and include both listed and unlisted corporates to increase bond supply.
  • Promote Market-Based Borrowing: Encourage large firms to diversify funding by issuing bonds rather than relying solely on bank financing.
  • Relax Insurance Investment Caps: Raise the 25% cap on corporate bond exposure and revise ‘Approved Investment’ rating from AA to AA– to allow prudent investment in high-quality lower-rated issuers.
  • Unlock Provident Fund Participation: It could also permit provident funds to invest in non-convertible debentures issued by infrastructure investment trusts and real estate investment trusts, enabling long-term capital to support infrastructure aggregation vehicles.
• Dispute pendency needs to be prioritised: 
  • Priority-Based Case Listing: Give priority to high-pitched assessments, cases with complete submissions, matters covered by SC/HC rulings, appeals older than five years, and the chronologically oldest cases.
  • Dual-Track Disposal System: Introduce a fast-track for simple or low-value cases and a detailed track for complex or high-value matters.
  • Fill Capacity Gaps: There is an urgent need to fill around 40% of the vacancies at the Commissioner of Income Tax (Appeals) level to improve disposal rates.
• Trade Facilitation: Extend Authorised Economic Operator (AEO) certification to newly incorporated firms of AEO-accredited groups to improve trade facilitation, faster clearances, and overall trade efficiency.
• Customs tariffs: Continue customs tariff reforms by reducing tariff slabs and calibrating duties across the value chain to correct inverted duty structures, support domestic manufacturing competitiveness, and facilitate trade.

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Conclusion

Budget 2026–27 should combine fiscal prudence with competitiveness-enhancing reforms and removal of structural bottlenecks to strengthen domestic growth engines, crowd in private investment, and boost India’s global competitiveness.

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