IAS/UPSC Coaching Institute  

02 Feb 2026 : Credible and creditable

Article 2 : Credible and creditable

Why in news: Union Budget 2026 marked a shift from Big Bang tax-centric reforms to a multi-pronged, sector-focused strategy. It focused on growth amid geopolitical and geo-economic uncertainty, avoiding disruptive policy shocks

 

Key details

  • No major tax cuts; emphasis on fiscal stability and targeted interventions
  • Support to manufacturing across biopharma, semiconductors, electronics, rare earths, chemicals, capital goods, textiles
  • Launch of India Semiconductor Mission 2.0 and Biopharma SHAKTI (₹10,000 crore)
  • Push for MSMEs, which contribute 48.6% of exports, through equity and liquidity support
  • Continued capex push at ₹12.2 lakh crore (4.4% of GDP)
  • Region-specific announcements for election-bound States
  • Fiscal deficit targeted at 4.3% of GDP

 

Overall approach of Budget 2026

  • Unlike Budget 2025, which focused on income-tax slab and rate cuts, Budget 2026 avoids Big Bang announcements
  • Adopts a diffused, multi-sectoral strategy aimed at sustaining medium-term growth
  • More suitable given geoeconomic and geopolitical uncertainties, as it avoids disruptive shocks

 

Focus on manufacturing and labour-intensive sectors

  • Announcements span manufacturing, services, and labour-intensive sectors like textiles and leather
  • Manufacturing measures focus on seven strategic areas: biopharma, semiconductors, electronics, rare earths, chemicals, capital goods, textiles

 

Strengthening globally competitive sectors

  • Semiconductors and electronics build on gains from existing PLI schemes
  • India Semiconductor Mission 2.0 and higher allocation for the Electronics Component Manufacturing Scheme support global competitiveness
  • Biopharma SHAKTI Scheme with ₹10,000 crore over five years aims to make India a global biopharma manufacturing hub

 

Trade and tariff-related considerations

  • Pharmaceuticals, a strong Indian sector, remain exempt from U.S. 50% tariffs
  • Sectors hit by tariffs need faster policy support
  • Past delays in implementing the National Export Promotion Mission highlight the need for time-bound execution of textile initiatives

 

Support for MSMEs and exports

  • Push to create ‘Champion MSMEs’ through equity, liquidity, and professional support
  • MSMEs contribute 48.6% of India’s exports
  • EU FTA, even if concluded soon, will not immediately offset losses from U.S. tariffs, making domestic support crucial

 

Boost to the services sector

  • Proposal for a high-powered ‘education to employment and enterprise’ standing committee
  • Emphasis on healthcare and medical tourism, where India already has emerging strengths

 

Region-specific and election-sensitive measures

  • Preference for smaller, targeted announcements over large packages
  • Examples include
    • Rare earth corridors for Odisha, Kerala, Andhra Pradesh, Tamil Nadu
    • Coconut Promotion Scheme for Kerala
    • East Coast Industrial Corridor for West Bengal
    • New national waterway starting in Odisha

 

Capital expenditure and infrastructure push

  • Continued capex-led growth strategy due to weak private investment sentiment
  • Capital expenditure rises to ₹12.2 lakh crore in 2026–27, about 4.4% of GDP, the highest in a decade
  • Includes dedicated freight corridors, skill training institutes, and a Coastal Cargo Promotion Scheme

 

Revenue strategy and tax policy

  • No major direct tax cuts for individuals or corporates, preserving fiscal stability
  • Past tax reliefs in 2019 and 2025 already stretched fiscal space
  • Procedural simplification in direct taxes
  • Indirect tax relaxations to boost marine, leather, textile exports and support energy transition

 

Revenue projections and fiscal balance

  • Corporate tax revenue projected to grow nearly 14%
  • Income-tax revenue growth modest at 1.9%, reflecting earlier rate cuts
  • Gross GST revenue projected to fall 13.5%, due to rate rationalisation and end of Compensation Cess
  • Fiscal deficit targeted at 4.3% of GDP in 2026–27, slightly lower than 2025–26

 

Overall assessment

  • Budget 2026 may disappoint those expecting large tax reliefs or subsidies
  • Nevertheless, it represents a credible, balanced, and pragmatic effort, prioritising stability, execution, and medium-term growth over headline-grabbing reforms

 

Way Forward

  • Ensure time-bound implementation of sectoral schemes, especially textiles and MSMEs
  • Provide fiscal flexibility if global uncertainties intensify
  • Accelerate services sector reforms, particularly education–employment linkages
  • Strengthen export diversification to offset external tariff shocks
  • Improve monitoring and execution capacity to avoid delays seen in past missions

 

Conclusion

Budget 2026 adopts a pragmatic and stabilising approach, favouring broad-based sectoral support over disruptive reforms. With a sustained capital expenditure push, targeted manufacturing and services initiatives, and fiscal prudence, it seeks to navigate global uncertainty while strengthening medium-term growth. Though modest on tax relief, the Budget remains credible, balanced, and execution-oriented, emphasising resilience over populism.

 

 

Prelims question:

With reference to Union Budget 2026, consider the following statements:

  1. The Budget prioritises sector-specific measures over large, one-time reform announcements.
  2. Capital expenditure in 2026–27 is budgeted at about 4.4% of GDP, the highest in the last decade.
  3. The Budget announces major direct tax cuts for both individuals and corporates to stimulate demand.

Which of the statements given above are correct?

(a) 1 and 2 only
(b) 1 and 3 only
(c) 2 and 3 only
(d) 1, 2 and 3

Correct answer: a