The Union Budget for FY26 was presented in the context of emerging significant downside risks domestically and, more so, on the external front that was exerting stress on all the three engines of growth — consumption, investment and exports.

The Finance Minister has done an excellent balancing act to revive both consumption and investments through various policy changes while also retaining the fiscal prudence.

Indeed the Budget speech was well-structured with focus on four engines (agriculture, MSMEs, investment and exports), fuel (reforms), guiding spirit (inclusivity) and destination (Viksit Bharat).

On consumption, increasing the minimum tax slab from ₹7 lakh to ₹12 lakh is
a masterstroke to revive private consumption and to some extent savings in the economy.

Most importantly the revenue foregone due to this proposal is only about 1 lakh crore, while its multiplier impact on growth would be much larger through savings/investments in addition to increase in consumption demand.

On investments, with the reduction in Budget Deficit to below 4.5 per cent itself is expected to release more resources for private credit. Further there are many more policies in the Budget that is expected to revive private investments.

Increase in limit under Kisan Credit Cards to ₹5 lakh that benefits 7.7 crore farmers & fishermen, increase in credit guarantee cover from ₹5 crore to ₹10 crore for MSMEs, from 10 crore to 20 crores for Startups, and up to ₹20 crore for exporter MSMES, and credit card for micro enterprises — all these measures are expected to increase credit flow to both agriculture as well as the MSME sectors.

This is expected to give push to both jobs and growth in these sectors.

The other engine is exports. Although exports demand largely depend on the competitiveness, few interventions such as setting up of Export Promotion Mission, ensuring easy access to export credit, tackling non-tariff barriers, setting warehousing facility and supporting the integration of global supply chains should help overcome the adverse effects of geo-economic fragmentation that was discussed at length in the Economic Survey.

Reforms being the fuel for engines, the budget introduces reforms in three areas – tax reforms, financial sector reforms and regulatory reforms – that are very significant. New income-tax bill, increasing FDI in insurance sector up to 100 per cent, developing Grameen Credit Score, and Jan Vishwas Bill 2.0 are expected to improve the ease of doing business.

The Budget has also balanced the pressures of providing stimulus to the economy and at the same maintaining fiscal prudence so that rating agencies do not penalise.

Indeed, unlike the previous Budgets, this one provides stimulus both through taxes as well as through improved quality of expenditure. The effective revenue deficit is pegged at as low as 0.3 per cent with effective government capital expenditure at 4.2 per cent.

The government has also came out with the debt target of achieving between 49 to 51 per cent by FY31 under various nominal GDP growth scenarios.

This will help in deriving fiscal deficit path as well, although what is more important is the mix of such fiscal deficit in terms of revenue deficit and government capital expenditure.

Overall, this Budget has ticked all the right boxes that will lead to inclusive and higher growth.

N.R. Bhanumurthy is director, Madras School of Economics, Chennai