The Union Budget for 2026-27 has been presented at a sensitive moment for the Indian economy. On the surface, things appear comfortable. India is growing fast and inflation is low. But a closer look shows that the picture is more complex.

The Budget had to balance these two realities, steady growth on paper and hidden economic stress underneath.

The ‘Goldilocks’ phase: Not too hot, not too cold?

The Governor of the Reserve Bank of India has described the current situation as a “rare goldilocks period”. India’s economy is expected to grow by 7.4% in the current financial year, making it the fastest-growing major economy in the world.

Inflation is also expected to stay near 2%, which is much lower than the RBI’s target of 4%. At a time when many countries are struggling with rising prices due to global supply problems, India has managed to shield its people from sharp inflation.

Other indicators, such as credit growth and unemployment, have also shown improvement, according to the Economic Survey. From this angle, the Budget’s main task was simply to continue on the “Viksit Bharat” path.

The other side of story: Weak nominal growth

However, there is another view that raises concerns. While real GDP growth is strong, nominal GDP growth, which includes inflation, is only around 8%. Traditionally, India has aimed for 12% nominal growth every year.

This matters because government income, spending and borrowing are all linked to nominal GDP. Weak nominal growth limits how much money the government can collect in taxes, spend on welfare, or borrow from markets. It also means slower income growth for citizens.

Low inflation, while good at first glance, can also signal weak demand in a developing economy. Inflation at 2% suggests people may not be spending enough, and jobs may not be growing fast.

Supporters of this view, point to the falling rupee, modest corporate sales, and capital moving out of India, both by foreign investors and Indians.

Since 2014, the government has followed the idea of “minimum government, maximum governance”. The focus has been on reducing borrowing and spending so the private sector can lead growth.

Major reforms were introduced, including GST, the Insolvency and Bankruptcy Code, a large corporate tax cut in 2019, and Production-Linked Incentive schemes.

The government also reduced its fiscal deficit and shifted spending away from salaries and subsidies toward building roads, bridges, and other assets. Capital expenditure has steadily increased, while revenue expenditure has fallen as a share of total spending.

Despite these efforts, private companies did not invest as expected. The main reason was weak demand. Many Indians faced high inflation, slow wage growth, or unemployment.

Unemployment was especially high among educated youth, with graduates finding it harder to get jobs than those with lower levels of education.

As the 2024 Lok Sabha elections approached, the government tried to boost consumption by increasing income tax exemptions and later cutting GST rates. These steps helped consumers but failed to fully revive private investment.

Global factors also played a role. Trump-era tariffs hurt smaller Indian businesses more than large firms, and capital outflows continued despite strong growth numbers.

What budget actually shows

One way to judge the Budget is by looking at fiscal discipline. The government met its fiscal deficit target of 4.4% of GDP, even with weak nominal growth. For many economists, this is a key achievement.

But looking deeper reveals how this target was met.

Tax collections grew more slowly than expected, showing low tax buoyancy. Government receipts increased by only 6.7%, lower than the pace of economic growth. At the same time, spending on food, fertiliser subsidies, pensions, and defence rose.

To manage this gap, the government cut spending in several areas. Capital expenditure grew by just 4%, while spending on health, education, social welfare, and urban development fell well below Budget estimates.

For 2026-27, the government expects nominal GDP growth of 10%. With real growth projected at around 7%, much of this increase will likely come from higher inflation.

With limited fiscal space, the Budget avoids big announcements. After focusing on consumption in recent years, the government has shifted back to the supply side, especially manufacturing.

Targeted steps have been announced for MSMEs and businesses in tier 2 and tier 3 cities, areas that were hit hardest by past reforms, the pandemic, and global trade disruptions.

The Budget stays cautious, choosing stability over risk. Whether this approach strikes the right balance or misses a chance for a bold new growth strategy remains a matter of debate. What is clear is that the government has chosen to stay the course in a world full of economic uncertainty.