L&T’s Sachchidanand Shukla: Budget 2026 Trades Excessive Spending for Strategic Depth in India

Lately, the spotlight on the Union Budget discourse has shifted from the headline fiscal deficit to the government's disciplined stance on debt consolidation. Analysts have pored over the numbers, but amid the noise, several underappreciated parameters deserve a closer look. These reveal not just fiscal prudence but a strategic pivot toward building economic resilience in an era of global turbulence.

With this in mind, consider the sheer scale: total expenditure is pegged at ₹53.5 lakh crore, or about 13.6% of the GDP. That's modest by global standards.

The European Union (EU) clocks in at 45–55% of GDP, the US at around 38%, China at 30–35%, Japan at 39–40% and even Brazil at 30–35%. Developed economies skew their spending toward social security, welfare, health care and defence. China, meanwhile, funnels resources into infrastructure, industry and social development.

India's fiscal consolidation drive—targeting a 4.3% deficit in 2026–27—leaves even less room for public spending relative to these peers, many of whom boast richer tax bases. This scarcity amplifies the stakes for expenditure quality and prioritisation.

Medium-Term Focus

India's real economic test lies in forging resilience amid volatile global macroeconomics and geopolitics. This demands bolstering productive forces: a robust manufacturing base, world-class infrastructure, a skilled workforce, quality institutions and an execution-focused entrepreneurial ethos.

Two expenditure pillars stand out—infrastructure and defence—signalling a decisive medium-term thrust by the Budget.

Government capital expenditure surges to ₹12.2 lakh crore from ₹11.2 lakh crore last year, cementing infrastructure as a growth engine. Targeted multimodal initiatives promise to reshape logistics. A new Infrastructure Risk Guarantee Fund will instil confidence in private developers, mitigating risks on complex projects. Domestic manufacturing gets a fillip through schemes for construction equipment and containers, reducing import dependence.

Ambitious connectivity plays include seven high-speed rail corridors, the Surat-Dankuni dedicated freight corridor, 20 new national waterways over five years and a Coastal Cargo Promotion Scheme eyeing a 12% share for waterways and coastal shipping by 2047.

These moves aren't just about building roads and rails; they're about slashing logistics costs, which currently hobble Indian exporters at 13–14% of GDP value versus 8% in China or 9% in the US. Efficiency gains will spur regional balance, empowering Tier-II and -III cities and Purvodaya states. Energy security weaves in seamlessly, with ₹20,000 crore for carbon capture, utilisation and storage (CCUS) technology, plus exemptions for critical-minerals processing.

Fraught Neighbourhood

In a neighbourhood roiling with geopolitical flashpoints defence merits special scrutiny. The allocation hits a record ₹7.85 lakh crore, up over ₹1 lakh crore year on year and approaching 2% of GDP, fulfilling long-standing commitments to Nato allies and signalling India's rising global heft.

The real firepower lies in capital outlay: ₹2.19 lakh crore, a 24% YoY jump. Of this, ₹1.85 lakh crore targets acquisitions—fighter jets, submarines, drones, missiles and air-defence systems—to modernise a force strained by two-front threats. Critically, ₹1.39 lakh crore is earmarked for domestic firms, supercharging atmanirbharta. Defence Research and Development Organisation's R&D budget rises 8.5%, fostering innovation with industry and start-ups; think next-gen hypersonics or AI-enabled surveillance.

Border Roads Organisation funding swells for strategic highways, optical-fibre networks get a boost for secure communications and the Ex-Servicemen Contributory Health Scheme leaps 45% to ₹12,100 crore, honouring veterans while retaining talent.

This isn't profligacy; it's calibrated deterrence. As India eyes Quad partnerships and potential EU defence-tech ties, these investments could unlock export avenues, with indigenous platforms like Tejas fighters or BrahMos missiles eyeing global markets.

Make or Break Factor

Fiscal discipline aligns neatly with these priorities, but success hinges on execution, private sector buy-in and navigating global headwinds for true multiplier effects. Allocations are table stakes; delivery is the game. Watch if the Risk Guarantee Fund crowds in private capex—laggards like past highway bids could derail fiscal glide paths. Track high-speed corridors and waterways for tangible logistics deflation; indigenisation schemes' ripple to engineering, procurement and construction firms and MSMEs; energy integrations like nuclear expansions and CCUS for green resilience.

Asset monetisation must be revived to fund the capex binge without bloating deficits. Regional equity demands scrutiny. Experts like those at NITI Aayog urge a public-private partnership revival, shifting from asset creation to "system efficiency": outcome-based contracts, digital tolling and AI-optimised supply chains.

Ultimately, execution momentum converts growth into jobs, infrastructure into productivity. This requires sustained supply-side reforms: Ease of Doing Business 2.0, smarter urbanisation to house a 1.5bn population and R&D incentives. Without manufacturing competitiveness, India’s aspirations will stutter and take longer to materialise.

Lurking risks compound the challenge. The impending 8th Pay Commission could swell the Centre's wage bill by 15–20%, while states' freebie frenzy defies their fiscal straits. Investors, rating agencies and multilaterals fixate on consolidated deficits (Centre + states at 7–8% of GDP) and debt trajectories. India collects just about 18% of GDP in taxes, with non-tax revenues like user charges and licences under 3%. This constrains social and capital investments crucial for building a developed nation.

Thus, revenue augmentation is non-negotiable. Without bolder collections India’s resilience buildout could struggle. In sum, this Budget trades spending spree for strategic depth. If executed with flair, it positions India as a resilient powerhouse. The trajectory is set; the onus is on delivery.

(The writer is group chief economist, L&T. Views expressed are personal)