U.S. Trust in China Wanes, But India’s Budget Offers No Plan for Global Fault Lines

In recent years, India has relied on the United States to navigate challenges posed by China. Beijing aims to restrict India’s emergence as a regional power in South Asia, often leveraging its ally Pakistan to achieve this objective.

Budget Signals Disappointment
Since the economic reforms of 1991, budget speeches in India have raised expectations that tax rates would stabilize, expenditure estimates would become predictable, and budgets would grow “boring.” This year, for the first time, that expectation seems to have come true—but for all the wrong reasons. Investors found the 2026 budget not dull but rather disappointing. The immediate trigger was the increase in Securities Transaction Tax (STT), but broader concerns stem from what Canadian Prime Minister Mark Carney described as cracks in the global order—both economic and political. The budget provides little guidance on how India plans to address these emerging global challenges.

Strategic Autonomy in Question
India has been conducting strategic maneuvers with the U.S. and QUAD partners—Japan and Australia—to counter regional threats. However, former U.S. President Donald Trump disrupted this consensus, imposing high tariffs on India while strengthening ties with Pakistan. India now must rely on itself, enhancing its strategic capabilities in sectors such as semiconductors and artificial intelligence to achieve true strategic autonomy.

Breaking the Old Patterns
To realize this vision, India needs to increase spending on defense, research and development, and improve educational quality at all levels. Advanced manufacturing capabilities in critical sectors are also essential. Achieving this requires breaking away from old fiscal patterns—both within and outside the budget—but the current budget offers no sense of urgency in these areas.

Private Investment and Fiscal Concerns
While credit rating agencies may welcome the budget due to a fiscal deficit target of 4.4% of GDP in FY26, falling to 4.3% in FY27, the corporate world faces sluggish profit growth, and private capital investment remains weak. To meet these deficit targets, the government cut capital expenditure by approximately ₹25,000 crore for FY26.

MSMEs Seek Affordable Credit
Though the budget announces several schemes for micro, small, and medium enterprises (MSMEs), these businesses primarily require easy and low-cost financing. Currently, MSMEs depend heavily on non-banking financial companies (NBFCs) for loans. Strengthening the corporate debt market by allowing NBFCs to raise funds via bonds under a unified SEBI-regulated framework would be crucial. This would also help in hedging currency, interest rate, and credit risks.

Sectoral Challenges Overlooked
The budget speech emphasized livestock development, yet high corn prices threaten the poultry industry, driven largely by the government’s push for ethanol blending.

Taxation and Revenue Realities
With improved GST auditing, total tax collections should ideally rise, but FY27 may see a slight decline relative to GDP compared to the previous two years. Personal income tax now contributes 20% more than corporate income tax, despite only about 6.5% of taxpayers filing returns. Indirect taxes continue to burden all citizens, including the poorest.

States’ Share of Revenue
The Finance Minister announced adherence to the 16th Finance Commission recommendations, promising to share 41% of revenue with states. Previously, under the 15th Finance Commission, only 34% was allocated. The FY27 budget promises a marginal increase to 34.6%.

Conclusion
The 2026 budget highlights fiscal prudence but fails to address India’s strategic, technological, and investment needs amid a changing global order. While it may satisfy ratings agencies, it leaves industries, states, and policymakers seeking a more forward-looking and decisive roadmap.