PM Modi: Building a productive architecture of Viksit India (Budget 2026-27)

February 4, 2026

Parneet Sachdev
Chairman of Real Estate Regulatory Authority and a leading author

Article 112 of the Indian Constitution requires the President to lay the “Annual Financial Statement” (Union Budget) every financial year. It details the government’s estimated receipts and expenditure. However, the budget is, in reality a roadmap to long term financial growth as well. Therefore, the Hon’ble Finance Minister of India in the Union Budget for 2026–27 sent a clear signal to markets and investors about the direction of Indian economic policy over the next two decades.

THE BROAD ROAD TO A VIKSIT INDIA

At a time of global volatility, the central capital expenditure of Rs 12.2 lakh crore, a fiscal deficit capped at 4.3% of GDP, and a debt trajectory that trends downward are important numbers (Government of India, Budget Documents 2026–27).

The Union Budget for 2026–27, presented at a moment of global economic fragmentation and geopolitical stress, signals a decisive shift in India’s development strategy: away from short-term stimulus and toward the deliberate construction of productive and innovative capacity that can sustain growth up to and beyond the goal of a “Viksit Bharat” by 2047.

THE THREE ANCHORS

Three macroeconomic anchors define the budget’s intent. First, central government capital expenditure has been budgeted at approximately Rs 12.2 lakh crore for 2026–27, continuing a trajectory in which central capex has risen from Rs 4.4 lakh crore in 2019–20 to nearly three times that level today. Second, the fiscal deficit has been pegged at 4.3% of GDP, consistent with the medium-term consolidation path announced earlier, while the debt-to-GDP ratio is projected to decline gradually to 55.6% (BE) from 56.1% (RE) in the previous year. Third, the budget explicitly links public investment to private capital formation, (Reserve Bank of India, State of the Economy, 2023).

MAKING THE INDIAN ECONOMY TARIFF-RESISTANT

One of the structurally important achievements of Budget 2026–27 lies in how it seeks to insulate the Indian economy from external weaponised tariff shocks. Lowering India’s internal cost base, deepening domestic value chains, and removing procedural frictions that magnify the impact of foreign tariffs.

At the border, the budget rationalises customs duties on critical raw materials, intermediates, and capital goods on items including monazite and other critical minerals, components for lithium-ion batteries, and specified capital goods for electronics manufacturing (Government of India, Budget Speech 2026–27). Reuters notes that these tariff cuts are explicitly intended to support domestic manufacturing and exports facing pressure from changing U.S. and global trade policies. By compressing input costs, the budget ensures that Indian firms retain pricing flexibility, a key condition for tariff-proofing.

Equally important are measures that address the second-order effects of tariffs: liquidity stress and supply-chain delays. The extension of export obligation timelines for duty-free imports, enhancement of duty-free input limits for export sectors such as seafood and footwear, and procedural simplifications reduce working-capital strain precisely when exporters face margin compression abroad (Government of India, Budget Speech 2026–27; Finance Bill, 2026). Finally, the correction of the “intermediary services” place-of-supply rule under IGST, strengthens India’s services exports, which historically act as a macroeconomic stabiliser during global trade slowdowns (Finance Bill, 2026).

URBANISATION AND REAL ESTATE

India’s urban transition is central to its development future. By 2047, more than half of India’s population is expected to live in urban areas, adding nearly 250 million people to cities and towns (World Bank, Urban Development Overview, 2022). The Budget 2026–27 attempts to correct this structural imbalance through the introduction of “City Economic Regions” (CERs), designed to align urban growth with regional economic drivers such as manufacturing, logistics, tourism, and services (Government of India, Budget Speech 2026–27). Unlike earlier urban schemes that focused narrowly on municipal infrastructure, CERs aim to integrate land use, transport, housing, and employment at a regional scale. This approach reflects international evidence that agglomeration economies drive long-term productivity growth (OECD, Cities and Productivity, 2015).

Complementing this planning shift is the proposal to monetise under-utilised land and real estate assets of Central Public Sector Enterprises through Real Estate Investment Trusts (REITs) (Government of India, Budget Speech 2026–27). Asset recycling through REITs allows the state to unlock capital tied up in low-productivity assets.

For real estate markets, the deeper significance lies in risk reduction. Regulatory fragmentation and uncertain approvals have historically inflated India’s real estate risk premium. If CER planning is combined with digitised approvals, predictable zoning, and technology-enabled RERA supervision, the cost of capital for housing and commercial development could fall materially, an essential condition for affordable urban growth.

LOWERING THE COST OF DISTANCE NAD RARE EARTHS POLICY

The proposed Infrastructure Risk Guarantee Fund directly addresses an anomaly i.e lower participation of private funds by lowering borrowing costs and reviving stalled private investment (Government of India, Budget Speech 2026–27). Studies by the World Bank and the RBI have shown that risk perception, rather than project viability, is the primary barrier to infrastructure financing in emerging economies (World Bank, Infrastructure Finance, 2020).

Logistics reform is another pillar. India’s logistics costs, estimated at 13–14% of GDP, remain substantially higher than the global benchmark of 8–9% (NITI Aayog, National Logistics Policy, 2022). The budget’s proposal to develop an east–west freight corridor, expand inland waterways, and promote coastal shipping aims to structurally reduce these costs. International experience suggests that every percentage-point reduction in logistics costs can significantly enhance export competitiveness.

High-speed rail corridors proposed along major economic axes provide transport efficiency, expand labour markets, reduce housing pressure. These effects are well documented in economies such as Japan and France (World Bank, High-Speed Rail and Economic Development, 2019).

India possesses significant reserves of rare earth elements, yet accounts for a negligible share of global processing and magnet manufacturing. The budget proposes the creation of Rare Earth Corridors across mineral-rich states, integrating mining, processing, research, and manufacturing. This cluster-based approach aligns with global best practices, recognising that value addition and geopolitical leverage, resides downstream rather than at the extraction stage (International Energy Agency, Critical Minerals Review, 2023).

The transition from India Semiconductor Mission (ISM) 1.0 to ISM 2.0 reflects a strategic shift from focusing on fabrication plants alone to building capabilities in equipment, materials, design IP. The enhanced allocation for electronics component manufacturing, from Rs 22,919 crore to Rs 40,000 crore, addresses a critical bottleneck (McKinsey Global Institute, Global Electronics Value Chains, 2021).

DEFENCE: CAPITAL FORMATION WITH INDUSTRIAL SPILLOVERS

Defence expenditure in Budget 2026–27 reaches an all-time high of Rs 7.85 lakh crore, with capital outlay of Rs 2.19 lakh crore and a significant portion earmarked for domestic procurement (Press Information Bureau, Ministry of Defence, 2026). This allocation reinforces India’s shift from import dependence toward indigenous capability under the “Atmanirbhar Bharat” framework.
Defence manufacturing has uniquely high spillover effects into civilian industry, particularly in electronics, materials science, and precision engineering. OECD studies show that defence-linked R&D has historically played a catalytic role in the development of advanced manufacturing sectors (OECD, Defence Innovation and Economic Growth, 2019).

SPEED OF DOING BUSINESS AND TAX REFORM

India’s compliance burden has often translated into high transaction costs. The proposal to deploy trained “Corporate Mitras” to assist MSMEs reflects an this understanding (World Bank, Doing Business and Firm Formalisation, 2020).
The implementation of the Income Tax Act, 2025 from April 2026 promises simplified language, fewer exemptions, and reduced litigation—longstanding demands of both taxpayers and investors. Empirical evidence suggests that tax certainty is a stronger driver of investment than marginal rate reductions (OECD, Tax Policy and Investment, 2018).

The proposed long-term tax holiday for foreign cloud service providers using Indian data centres signals India’s ambition to become a global digital infrastructure hub over the next two decades.

History suggests that nations become developed not when they promise prosperity, but when they patiently build the systems that generate it. This marks a shift from protectionism to resilience, where competitiveness, becomes the first line of defence. In that sense, Budget 2026–27 moves India decisively in the right direction.

Parneet Sachdev, IRS is the Chairman of Real Estate Regulatory Authority and a leading author.