While the capital spending is being maintained at 3.1 per cent of the GDP, a little more would have boosted economic growth even further, suggests Rajiv Memani.
The FY26 Budget has its eyes fixed on Viksit Bharat by 2047. It identifies the key long-term growth levers, structural changes and the actions that the government intends to take.
It reflects fiscal prudence via a commitment to maintaining the government debt to GDP ratio while providing an immediate consumption boost.
I must congratulate the finance minister for achieving multiple objectives at one go.
For India to grow rapidly it needs to create more jobs and opportunities for the youth.
Increasing private investments and raising the share of manufacturing and exports in the economy are critical for employment generation.
The government has identified specific industries that are either labour intensive or related to new age products -- electronics, leather products, toys, batteries -- and clean tech products related to energy transition for domestic and export markets.
The ecosystem is proposed to be created through a combination of schemes, development of clusters and skills, and complemented by policy and facilitation measures.
The Budget has proposed changes in customs tariffs for both input materials and capital goods to ensure cost competitiveness of domestic manufacturing.
Entrepreneurs and exporters should expect a more consultative and facilitative government.
The need for ease of doing business and simplification of regulations has been highlighted in the Economic Survey.
Commitment of the tax department to “trust first, scrutinise later”, and the proposal to introduce the new Income-Tax Bill next week with 50 per cent lower provisions, needs to be complimented.
Equally significant is the proposal to set-up a high-level committee for regulatory reforms to review all non-financial sector regulations, certifications, licenses, and permissions, especially in matters of inspections and compliances.
The government recognises that the envisaged growth may not happen without a stronger commitment of the states.
Many areas, especially those related to manufacturing, labour, electricity and urban infrastructure are state subjects.
The government proposes to co-opt them in bringing about governance improvements through fiscal incentives and creation of state-wide indexes.
As part of the focus on urban infrastructure, the Budget proposes to set-up an Urban Challenge Fund of Rs 1 trillion for implementing ‘Cities as Growth Hubs’, while addressing issues related to governance, municipal services, urban land, and planning to improve the quality of urban infrastructure.
There are proposals that incentivise states to address power distribution and tourism infrastructure.
Successful execution of governance reforms at the Centre and the states can drive a multi-year capex cycle.
The Budget covers the building blocks of new technologies, skilling and energy transition.
The 100 Gw target for nuclear power together with changes in the Atomic Energy Act and Civil Liability for Nuclear Damage Act reflect pragmatism on the part of the government.
Nuclear plants can supply decarbonised, round the clock power at competitive tariffs. This focus on nuclear energy also has the potential to strengthen India-US partnership.
The focus on fiscal management is commendable. Except for exceptional events such as the Covid, the government has been prudent in spending.
The capital spending is being maintained at 3.1 per cent of the GDP, despite the Rs 1 trillion foregone on direct tax revenues.
The quality of fiscal deficit has improved over the years, visible from the lower revenue deficit/fiscal deficit ratio that has come down from 38.9 per cent in FY25 (RE) to 33.4 per cent in FY26.
Finally, while there was a big anticipation that small to mid-income taxpayers should benefit from changes in tax rates and rebates, the FM surprised everyone with the extent of the change.
This Rs 1 trillion not only gives a boost to consumption, which may have a long-term multiplier effect of about Rs 2.3 trillion but also enables equitable growth.
Talking of animal spirits, maybe a slightly higher government capex outlay would have boosted economic growth even further, offsetting any downsides to higher spending.
Rajiv Memani is chairman & CEO of EY India
Disclaimer: These are Rajiv Memani's personal views of the writer.
Feature Presentation: Rajesh Alva/Rediff.com
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