UNION BUDGET FTAs LOOM LARGE

The budget for 2026–27 presented by the Modi government appears to have been shaped entirely under the pressure of global-level changes, and as a result, strong economic reforms are conspicuously absent. The financial budget announced by the government for 2026–27 has been largely disappointing. In this budget, the common public has neither received any reduction in tax rates nor any relief from the impact of inflation. Farmers too appear disappointed, as neither were any new crops included under the MSP scheme nor was there any visible thought given to relief on their financial loans. Most surprising is the fact that the government made no announcement regarding an increase in capital expenditure, which had been one of the Modi government's greatest strengths over the past several years, and it was precisely for this reason that the stock market witnessed a sharp decline immediately after the budget.

Analysis of the 2026–27 budget indicates that due to pressure from President Trump's tariff policies, the government had already implemented a significant reduction in GST rates before Diwali, leading to a substantial loss in revenue. Along with this, in the previous financial year, the government also made major changes in the income tax threshold, which similarly resulted in a comparative decline in direct tax collections. For this reason, no announcement was made regarding an increase in capital expenditure, which certainly raises a question on the very approach that had long been the hallmark of the Modi government. Another basis of analysis is that this budget has been formulated entirely under the shadow of several free trade agreements that were rapidly concluded by the government in recent months to avoid the impact of Trump's tariff policies. Through the reduction in GST rates, the government has already increased savings in the domestic market, and now its entire focus is on boosting exports under free trade agreements and, through that, on attracting foreign capital inflows. The government has also patted itself on the back for having established control over the fiscal deficit, citing its success in bringing it below 4.5 percent as announced in 2021–22, and has prominently stated its objective of reducing it further to 4.3 percent in the upcoming budget.

Under the budget, focus has been placed on MSMEs to promote the manufacturing sector, which is highly encouraging. A provision of ₹10,000 crore has been announced to provide capital support to MSMEs, in addition to an extra fund of ₹2,000 crore to address risks. To support MSMEs in smaller cities, the government has taken a positive initiative by announcing the integration of the single ICSE unit. In order to establish India in the global market for the production of organic medicines, the measures announced for the pharma sector are very encouraging. Additionally, in the healthcare sector, the government has spoken of moving forward in partnership with the private sector to establish five regional medical hubs, under which facilities related to diagnosis of various diseases, essential care, and patient rehabilitation will be brought under one roof. This is likely to generate significant employment opportunities in the healthcare sector in the coming years.

India will have to rapidly strengthen its lead in the field of artificial intelligence, and for this purpose the government has announced 100 percent tax exemption until 2047 for all foreign companies that provide cloud services in India. This step is highly encouraging. However, the budget's silence on efforts to attract Indian AI startups that have moved to the United States back to India is disappointing. In infrastructure development, apart from the announcement of seven railway corridors, no major declaration was seen, which is quite surprising.

With regard to farmers, the Modi government, which has consistently spoken of doubling farmers' income, appeared completely silent in this budget. Only a few announcements were made related to cashew and coconut cultivation so that India can achieve self-reliance in this area and move rapidly towards exports. Beyond this, there was no discussion on farmers' loans or MSP, which is highly disappointing.For the banking sector, the government has certainly taken a step forward by proposing the formation of a committee under the vision of a developed India to integrate it into the mainstream. This could enable further expansion of banking in rural areas in the coming time and also serve as a step towards modernization. In the area of research and development, the government has proposed the creation of five university corridors to enhance this sector, which will work in collaboration with private industry. Efforts have been made to bring girls and women into the mainstream, and provisions have also been made for the construction of separate hostels in cities for their education. In the tourism sector, the government has made arrangements for training 10,000 guides for 20,000 locations, with all necessary implementation to be carried out by the Indian Institute of Management.

Through this budget, the government has certainly taken the first step towards increasing employment through the service sector, but at the primary level it has only proposed the formation of a high-level committee. This committee will attempt to identify sectors with growth potential and establish coordination with educational institutions for the development of necessary skills and capabilities among youth. However, the outcomes of these measures still lie in the uncertainty of the future. Under tax-related announcements, to safeguard the interests of minority shareholders in companies, promoters will now have to pay 22 percent tax under the buyback scheme, while others will pay 30 percent. The removal of customs duty on 17 cancer drugs can also be considered a necessary and positive initiative, which will provide significant relief to society.

Although the 16th Finance Commission had presented its report in Parliament on December 17, 2025, the government did not table it during the winter session. However, in this budget, the government has accepted the Finance Commission's proposal to allocate 41 percent of revenue to the states, under which financial assistance of nearly over ₹1 lakh crore will be provided to them.

To ensure that small investors do not burn their hands in the stock market, the government has increased the Securities Transaction Tax (STT) on investments in futures and options. However, its negative impact was immediately visible in the stock market, leading to a sharp decline.

Amid all this, there has been considerable disappointment over the fact that the government has not reduced any duty despite the continuous rise in gold and silver prices. The unexpected surge in silver prices has already dealt a severe blow to employment in the unorganized sector, and the government's silence on this issue is difficult to understand. It is well known that China has imposed a ban on silver exports, and this is a direct consequence of that move. Regarding the rise in gold prices, the government has repeatedly stated that it is due to purchases by central banks to control the increasing value of the dollar in the future, though this explanation too remains beyond the understanding of the general public. As a result, the common man in Indian society is likely to move away from purchasing jewellery made of both gold and silver. In addition, it is well known that China is rapidly strengthening its position in AI, green technology, and rare earth minerals, and due to this India's dependence on China is also increasing. On this aspect too, no incentives of any kind for the manufacturing sector are visible in the budget. The government has placed significant trust in the IT sector within the services sector, and the safe harbour limit, through which it can avoid various technical and legal complications, has been increased from ₹300 crore to ₹2,000 crore. Through this, simplification across various facilities in the IT sector is expected in the coming time, along with reduced costs and improved efficiency. This will further enhance India's global standing in this domain and, through the recently concluded free trade agreements, enable India to establish itself more rapidly in certain countries.

THE VIEWS EXPRESSED BY THE AUTHOR ARE PERSONAL