01/02/26, Naya Economy ?!

 Nine months after Operation Sindoor fundamentally changed India's strategic and economic environment and six months after PM Narendra Modi began a new push for economic reforms with a clarion call for ‘swadeshi' and self-reliance in his Independence Day speech from the Red Fort, his government's 2026 Budget seeks to carry forward the momentum of several reforms introduced since then with a concerted push to push a ‘Naya Economy.'

These include a determined focus on what Finance Minister Nirmala Sitharaman termed as the seven strategic sectors: semiconductors, rare earth, electronic components, biopharma, domestic chemical production, strong capital goods, and boost to textiles

Specifically, here are 8 big takeaways from Finance Minister Nirmala Sitharaman's ninth consecutive Budget, which pegs the Indian government's spending size at about Rs 53 lakh crore (almost Rs 4 lakh crore more than last year) - or roughly about $600 billion:

• Staying within the blanket: fiscal consolidation: If there has been one consistent theme in PM Modi's economic doctrine over the past 12 years, it has been a focus on keeping expenses in line with earnings. Holding the line on this underlying impulse, the fiscal deficit has been consolidated to 4.3%, down from 4.3% last year. The debt-GDP ratio has also been reduced to 55.6%, down from 56.1% a year ago. This, by the way, is among the lowest among G7 economies. For comparison, France's debt-GDP ratio is 94.3%, Italy's is 132.5%, Japan 200.9%, the UK 100.7%, and US 102.7%. Among major economies, only Germany and Canada have better debt-GDP ratios.

• Muscle up with capex push: For several years now, capital spending has been a major driver of India's economy. By hiking it to Rs 12.22 lakh crore, compared to Rs 11.2 lakh crore last year - this means an 8.9% increase over FY 26 budgeted estimates, the biggest hike on this measure ever. The government is signalling continuity for its big infrastructure push.

India's logistics costs are generally higher than comparable countries, and the capex push, in tandem with the push for reforms in ports and coastal infrastructure in Parliament's winter session - through an overhaul of five colonial-era laws that governed this sector - signifies a doubling down on this underlying plumbing for the economy. See, for example, the emphasis on boosting port and rail connectivity through enhanced infrastructure development with a capital outlay of Rs 10,000 crore over the next five years and plans to develop seven high-speed rail corridors as growth connectors, including Mumbai–Pune, Pune–Hyderabad, Hyderabad–Bengaluru, Delhi–Varanasi and Varanasi–Siliguri.

The fact that gross government borrowings are up to Rs 17 lakh crore without any slippages on the fiscal consolidation roadmaps signals that a large part of this may go into asset creation, rather than current expenses.

• Tonic for new military-industrial complex: With Operation Sindoor still on and the emergency spending on defence equipment that we have seen in the last few months, defence expenditures were always expected to be up. In line with that, defence capex spending is up by 17% (when we compare revised estimates of last year with Budget estimates for this year). This means a big fillip for the new military-industrial complex that is being set up.

Expect a lot of movement on drones and many smaller companies that will work with the bigger defence firms. Historically, big shifts in the defence industry of any country, usually have a knock-on positive impact on the wider economy. A lot of technologies we take for granted today - like GPS for example - were initially developed for the American military.

What does the Budget mean for Businesses?

• Long live GCCs: A month after big investments by global tech giants in GCCs, (Google $15 billion bet on Visakhapatnam, Amazon's $ 35 billion, and Microsoft's $17.5 billion), the Modi government's tax holiday for data centres until 2047 signals strategic intent to double down on this and corner global market share. Big tech companies see India as a major testing ground for AI on large population scale, and despite tensions around tariffs, this is emerging as a large growth area, with potential for job creation as well, even as the traditional IT services sector is facing a decline

• Easing up for SEZs: Companies manufacturing in special economic zones can now sell surplus products in domestic markets at concessional tariffs. This is a response to the pressure exporters are facing, giving them additional options.

• Electronics zindabad: Smartphones and electronics have been one of the big successes of the production-linked incentives plans, which operate in 16 sectors. It makes sense, therefore, for the government to focus on an additional Rs 40,000 crore PLI for electronics.

What does the Budget mean for consumers?

• No problem with imports: In a nod to the global Indian, the government has reduced duties on imported goods for personal use by half. Although it is always difficult to define the dividing line between personal and business use.

• Studying abroad easier: At a time when the cost of studying abroad has gone up by about 10-15% since last year due to the weakening rupee, there is some relief for those whose kids are studying overseas. TCS for overseas education or medical expenses has been reduced from 5% to 2%. This partly reverses an earlier increase.

If the 2025 Budget was about boosting the middle classes and consumption spending, and 2024 was about shoring up key political constituencies where the Modi government saw an erosion of support in the 2024 general elections, 2026 is about stabilising in choppy global waters. This is the common thread seeping through strategic areas like semiconductors, critical minerals, battery storage, and defence. Those expecting big bang economic reforms akin to what we saw in 1991, major changes to lift up the animal spirits of the economy, would be disappointed.

Amid a global environment that is hugely challenging and disruptive, the government's account keepers seem to be saying, ‘Let's hold the line and be safe. Let's keep our powder dry.'

Report by Nalin Mehtha