India entered 2026 navigating a turbulent global economy but surprised sceptics by holding firm against external shocks, including steep tariffs imposed by the United States. The resilience of the Indian economy has been rooted less in cyclical luck and more in a steady reform push. As Prime Minister Narendra Modi recently underlined, reforms are no longer episodic but a continuous national mission. Budget 2026-27 is now expected to deepen this trajectory by strengthening domestic drivers of growth while preserving fiscal discipline.
Why Budget 2026-27 Matters for India’s Growth Path
The global outlook remains uncertain, with geopolitical tensions, protectionism, and supply chain realignments weighing on trade. For India, the policy challenge is twofold: sustaining growth momentum while avoiding fiscal excesses. The emphasis must therefore remain on growth-enhancing capital expenditure and targeted social sector spending, without deviating from the fiscal consolidation glide path or allowing public debt risks to rise.
Defence Spending as a Strategic Growth Lever
A key priority is defence. Increasing the share of capital outlay in defence to 30% from the current budgeted level would strengthen military preparedness while boosting domestic manufacturing. Enhanced funding for the would accelerate indigenisation, innovation, and technology absorption.
Defence industrial corridors in Uttar Pradesh and Tamil Nadu have already demonstrated how defence spending can catalyse regional industrial ecosystems. Extending this model to eastern India could address regional imbalances while expanding defence production capacity.
Scaling Defence Exports and the Private Sector’s Role
Private enterprises now account for nearly two-thirds of India’s defence exports, signalling a structural shift away from public sector dominance. A dedicated defence export promotion council could institutionalise coordination among the armed forces, private manufacturers, public sector units, diplomats, and policymakers. Such an institutional mechanism would be critical to achieving India’s defence export target of ₹50,000 crore by 2028-29.
Critical Minerals and the Next Phase of Industrial Policy
The global transition towards clean energy, electric mobility, advanced manufacturing, and semiconductors has made access to critical minerals a strategic necessity. The , approved in early 2025, provides a policy backbone to secure these resources.
Budget 2026-27 can strengthen this mission through a dedicated tailings recovery programme and specialised financing windows. Such interventions would not only reduce import dependence but also align mineral security with environmental sustainability.
Exports, GCCs and New-Age Manufacturing
Exports require renewed policy thrust amid weak global demand and rising protectionism. Enhancing allocations under the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme would directly improve export competitiveness.
Simultaneously, India’s emergence as a global hub for Global Capability Centres has exposed gaps in its transfer pricing framework. Clear guidance on acceptable transfer pricing models would reduce disputes, improve policy certainty, and reinforce India’s attractiveness as a global services destination.
Financing Growth Beyond Banks
Deepening corporate bond markets is essential to diversify credit away from an over-reliance on the banking system. Expanding the issuer base, relaxing investment norms for insurance and provident funds, and allowing investments in infrastructure and real estate investment trusts would mobilise long-term capital for infrastructure and industrial expansion.
Such reforms would better align India’s financial architecture with its rising investment needs.
Resolving Tax and Trade Bottlenecks
Persistent tax disputes continue to undermine investor confidence. Addressing pendency at the Commissioner of Income Tax (Appeals) level through a dual-track resolution mechanism and filling long-standing vacancies would significantly ease compliance burdens.
On the trade facilitation front, easing eligibility norms for newly incorporated firms under the Authorised Economic Operator programme would improve logistics efficiency. Continued rationalisation of customs tariff slabs would also help correct inverted duty structures and support domestic manufacturing competitiveness.
What to Note for Prelims?
- Capital expenditure and fiscal consolidation glide path
- National Critical Mineral Mission and its objectives
- Defence industrial corridors and defence export targets
- Role of the AEO scheme in trade facilitation
What to Note for Mains?
- Discuss how Budget 2026-27 can balance growth and fiscal prudence
- Analyse defence spending as both a security and economic strategy
- Examine the role of financial market deepening in sustaining long-term growth
- Evaluate export competitiveness challenges in a protectionist global environment
