Acronyms, Austerity, and the Politics of Budget 2026
Abstract
The Union Budget 2026–27 is projected by the Union government as a fiscally disciplined instrument for building the long-term foundations of a “Viksit Bharat”. However, a closer political economy analysis reveals a budget that prioritises supply-side interventions, macro-fiscal signalling, and symbolic renaming of schemes over employment generation, rural distress mitigation, and substantive federal cooperation. Despite marginal improvements over the Union Budget 2025–26 in select areas—particularly limited tax relief for the middle class—the Budget departs significantly from the empirical diagnosis presented in the Economic Survey 2025–26. Drawing upon opposition critiques, economists’ assessments, and sectoral allocations, this article argues that Budget 2026–27 represents a deliberate choice to privilege capital, centralisation, and fiscal orthodoxy at the cost of social welfare, employment, and cooperative federalism. Viewed from the perspective of the ordinary citizen, the Budget offers acronyms without ambition and discipline without demand.
I. Introduction: Budgetary Politics and Everyday Economics
Union Budgets in India are not merely fiscal documents; they are political statements that reveal the priorities, ideological commitments, and governance philosophy of the regime in power, while simultaneously shaping the material conditions of everyday life. The Union Budget 2026–27 continues a pattern visible over the last decade: an emphasis on macroeconomic stability, headline-friendly schemes, and centralised control, coupled with a systematic retreat from welfare-led demand stimulation and federal equity. While the government claims continuity with reform and growth, the lived realities of unemployment, agrarian distress, and declining real incomes suggest a widening gap between fiscal rhetoric and social outcomes.
II. Budget 2026–27 at a Glance: What Changed Since 2025–26
Budget 2026–27 at a Glance — What Is New?
• Rebranded expansion of digital and AI-based skilling initiatives, largely platform-driven and short-term.
• Continuation of Production Linked Incentive–type schemes under new manufacturing missions, with no major increase in labour intensity.
• Replacement of MGNREGA with the Viksit Bharat (VB-GRAM G) Act, shifting 40% of programme costs to states (up from 10%).
• Marginal rationalisation of income tax slabs under the new regime, offering limited middle-class relief.
• No significant increase in real terms for agriculture, health, or education spending.
In contrast to Budget 2025–26, the 2026–27 Budget introduces changes primarily in nomenclature and financing architecture rather than substantive redistribution or expansionary public investment.
III. Ignoring the Economic Survey 2025–26: A Policy Disconnect
The Economic Survey 2025–26 identified several structural concerns: stagnating private investment, declining net FDI inflows, falling household savings, weak employment elasticity of growth, and rising precarity in informal labour markets. The Budget, however, fails to address these challenges directly. Instead of reviving demand or expanding public expenditure in employment-intensive sectors, it reiterates faith in supply-side incentives and fiscal consolidation. This disconnect between diagnosis and prescription reflects an ideological preference for market-led growth, even in the face of mounting empirical evidence of its limitations.
IV. Agriculture and Rural Economy: Retreat from Responsibility
Agriculture and allied sectors remain among the most neglected areas in Budget 2026–27. Allocations for key schemes such as the Rashtriya Krishi Vikas Yojana, crop insurance, PM-POSHAN, and rural housing have either stagnated or declined in real terms. The replacement of MGNREGA with the VB-GRAM G Act marks a significant policy shift: states are now required to finance 40% of programme costs, up from 10% earlier. This change disproportionately burdens fiscally constrained states and undermines the constitutional principle of shared responsibility.
Notably absent is any significant increase in public investment in agricultural research, extension services, irrigation sustainability, or agricultural education. For rural households, this translates into reduced income security, fewer employment opportunities, and heightened vulnerability to market shocks.
V. Employment and the Illusion of Skilling
The Budget reiterates its commitment to skilling and digital employment without confronting the central crisis of job creation. Economists such as Venkatesh Athreya have argued that skilling, in the absence of labour-absorbing growth, merely reshuffles unemployment. Manufacturing employment continues to lag far behind the expanding workforce, and informalisation remains the dominant trend. The emphasis on AI-enabled jobs, gig platforms, and digital reels offers aspiration without assurance, particularly for youth in semi-urban and rural India.
VI. Manufacturing: A Hollow Thrust
The government’s manufacturing rhetoric contrasts sharply with global realities. China’s manufacturing success is anchored in state-backed finance, technology transfer, and scale. Europe’s industrial revival is driven by green subsidies, while the United States has deployed massive public investment through the CHIPS Act and Inflation Reduction Act. India’s approach—tax incentives without ecosystem-building—fails to address core constraints such as energy costs, logistics inefficiencies, MSME credit access, and workforce stability.
VII. Macroeconomic Critique: P. Chidambaram’s Intervention
Former Finance Minister P. Chidambaram’s critique of the Budget raises fundamental macroeconomic concerns. He points to the absence of any discussion on penal tariffs, particularly the 50% tariffs imposed by the United States on Indian goods, which have eroded export competitiveness. The growing trade deficit with China, uncertain FDI flows, and persistent portfolio outflows remain unaddressed.
On defence expenditure, Chidambaram notes that while nominal allocations have increased, defence spending has declined from 2.3% of GDP in 2013–14 to 1.9% in 2026–27. Capital expenditure cuts amounting to ₹1.44 lakh crore in 2025–26 further undermine the government’s growth narrative.
Fiscal consolidation also appears inadequate. With the fiscal deficit declining by only 0.1 percentage points annually, achieving the FRBM (Fiscal Responsibility and Budget Management) target of 3% would take over a decade. The revenue deficit remains at 1.5%, indicating continued borrowing for consumption rather than productive investment.
VIII. Education, Health, and Social Sector Underspending
Despite nominal increases, allocations for education and health remain far below long-standing policy benchmarks of 6% and 5% of GDP, respectively. Significant underspending in schemes such as the Jal Jeevan Mission, where revised estimates show a 75% cut, undermines last-mile service delivery. The burden of inadequate public provisioning continues to be borne by households through rising out-of-pocket expenditures.
IX. Federalism Under Strain
The Budget reinforces trends of fiscal centralisation. Cuts in centrally sponsored schemes, rigidity in Finance Commission devolution, and the neglect of state-specific demands—highlighted by Kerala Chief Minister Pinarayi Vijayan—undermine cooperative federalism. States are increasingly tasked with implementing national priorities without commensurate fiscal support, eroding both autonomy and accountability.
X. Middle-Class Tax Relief: Marginal Gains, Structural Limits
The rationalisation of tax slabs under the new regime offers limited relief to the salaried middle class compared to 2025–26. However, inflation in education, healthcare, and housing costs quickly erodes these gains. Tax relief without employment security and real wage growth provides only temporary respite.
XI. Strategic Silences: Rupee, Trade, and Global Uncertainty
The Budget remains conspicuously silent on the depreciation of the rupee against major currencies and its implications for imports, inflation, and external debt. Nor does it outline a strategy to navigate global trade fragmentation or revive export competitiveness in the face of protectionist barriers.
XII. Conclusion: Discipline Without Democracy or Demand
Union Budget 2026–27 reflects a deliberate political economy choice: to privilege capital accumulation, centralised control, and fiscal orthodoxy over employment, welfare, and federal equity. For the ordinary Indian—farmer, worker, student, or salaried employee—the Budget offers symbolic reassurance rather than substantive security. Without a decisive shift towards labour-intensive manufacturing, demand creation, and cooperative federalism, India’s growth trajectory risks becoming increasingly exclusionary and fragile.
References
1. Government of India. Economic Survey 2025–26. Ministry of Finance.
2. Government of India. Union Budget 2026–27: Budget at a Glance. Ministry of Finance.
3. Athreya, V. (2024). “Employment, Growth and the Indian Economy.” Economic and Political Weekly.
4. Rangarajan, C. (2025). “Fiscal Deficits and Macroeconomic Stability.”
5. Chidambaram, P. (2026). Interviews and public statements on Union Budget 2026–27.
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