Riding on optimism, promising the riches

With total revenue receipts projected to increase by 9% — budget estimates (BE) FY26 over BE FY25 — a pace lower than that of the nominal GDP growth, and the government’s commendable commitment to maintaining the fiscal deficit target at 4.4%, it was incumbent for the FM to slow down the growth in public expenditure compared to previous years. Thus, total expenditure is slated rise by only 5% in FY26 with public capex remaining virtually unchanged at ₹11.2 lakh crore compared to the budgeted ₹11.11 lakh crore in FY25. There are two inferences here. One, the government has recognised that its absorptive capacity of for capex has now been reached. Two, the experience over the last three years has amply shown that there is a limit to which public capex can crowd in private investment. These are good omens. This implies the government will become more supportive of private investors and entrepreneurs across the board.

The setting up of the high-level committee for examining the plethora of compliances, inspections and regulations, including those in the financial sector, is another tangible step in this regard. This committee will be effective only if the finance minister herself chairs it and it includes all the willing state FMs who would like to reduce the regulatory cholesterol in their system. The committee should also review the operation of the various agencies that reportedly have exacerbated the climate of fear and unpredictability in recent years. Even after the committee finalises its recommendations — and hopefully doesn’t take a year to do so — significant follow up measures will be required to bring cheer to the private investors. Therefore, it would have been useful to announce that a statutory body such as the Inter-State Council will monitor the timely implementation of the committee’s recommendation.

Boosting private entrepreneurs’ confidence and enhancing trust levels is timely because, as the Economic Survey pointed out, private capex could now be at the cusp of a rising phase of the investment cycle. Hopefully, state governments will participate actively in the construction of the Investor Friendliness Index and compete to improve their ranks. This will, hopefully, change the perception of the state governments as becoming active supporters of private investment rather than continue to be seen as rent-seekers.

Private investment will also be given a fillip by the budget announcement of doubling the capital stock limit for small and medium enterprises from ₹250 crore to ₹500 crore. This is also supplemented by enhancing the credit limits for MSMEs; creating a new ₹10,000-crore fund of funds and empowering the micro-enterprises with a credit card. The focus on labour-intensive sectors like leather, toys, and food processing is welcome as these present solid private investment opportunities.

Hopefully, the National Mission on Manufacturing will come up with realistic and time-bound recommendations for significantly improving the ecosystem for manufacturing sector. India has unfortunately seen a stagnation of the manufacturing sector’s share in the overall GDP and employment over the last couple of decades! This must change. The mission will do well to examine the cost of land and the persistent rigidities in the labour markets that are critical constraints in expanding manufacturing capacities in the country.

The reduction in the personal income tax rates, including the sharp rise in exemption limits to ₹12 lakh ( ₹12.75 lakh for salaried employees) can also be seen as an attempt to stimulate capacity expansion by private investors. This is again timely. The Reserve Bank of India recently pointed out that capacity utilisation levels have crept up over the past two years. Now is the time for investing in new capacity both for meeting the domestic and even more so for meeting the export demand and raising India’s share in global merchandise trade, which has been stagnating since 2014. On the other hand, we must keep in mind that India has the one of the lowest proportions of tax-paying population with only 3% of households in the tax net, of whom up to 60% do not pay any tax. These anomalous statistics will rise further with the rise in exemption levels.

Focusing on productivity and yield-enhancing measures in 100 backward agriculture districts, a replication of the relatively successful aspirational districts programme, could help mitigate farmers’ distress. However, farmers all over the country are now faced with declining returns on chemical inputs and worsening of soil health. I should, therefore, confess to my disappointment in not finding a mention of regenerative or natural farming in this year’s budget. Hopefully, some good news on this front is tucked away in the budget minutiae.

Rajiv Kumar is chairman, Pahlé India Foundation, Delhi, and former vice-chairman, Niti Aayog. The views expressed are personal