India’s latest economic survey sends a clear signal that the government is preparing a capital expenditure-heavy Union Budget anchored in manufacturing competitiveness rather than short-term consumption, according to Namrata Mittal, chief economist at SBI Mutual Fund.
Mittal said the survey, traditionally viewed as a guide to the government’s fiscal intent, underscores a policy preference for productivity-led growth, tighter control on welfare spending and renewed focus on lowering the economy’s cost of capital.
“The Survey is explicit that sustainable growth now depends on manufacturing depth, not just financial deepening,” Mittal wrote in her analysis, adding that the Centre is likely to persist with fiscal consolidation while improving the quality of public spending.
She expects a double-digit increase in central government capital expenditure, alongside measures aimed at crowding in private investment in infrastructure, strategic manufacturing and advanced technologies such as semiconductors and clean energy. At the same time, the Survey’s sharp criticism of state-level fiscal populism suggests there will be little appetite for new welfare “freebies” at the federal level, she said.
Mittal highlighted that the Survey raises concerns about rising revenue deficits in states and their spillover effects on sovereign borrowing costs, warning that weak fiscal discipline can no longer be treated as a localised issue. India’s ten-year bond yield stands at about 6.7 per cent, higher than peers with similar credit ratings, reinforcing the need to contain government securities supply, she noted.
A central theme of Mittal’s reading is the Survey’s argument that manufacturing competitiveness is key to currency stability. While short-term movements in the rupee may diverge from fundamentals due to geopolitical factors, long-term strength, she said, will depend on expanding the tradable goods sector and integrating more deeply into global value chains.
On trade, Mittal said the survey’s acknowledgement of unexpected cumulative tariffs of 50 per cent imposed by the United States on Indian exports strengthens the case for export-oriented incentives in the coming Budget. The emphasis, however, is not on tariff protection but on competition, efficiency and deregulation, with the Survey warning that broad-based import protection harms downstream competitiveness.
Disinvestment also returns as a policy lever, according to Mittal. The Survey hints at amending the definition of a “government company” to allow the Centre to reduce its stake in listed state-owned enterprises below 51 per cent while retaining strategic control, potentially widening the scope for offer-for-sale transactions and equity monetisation.
Mittal said this approach could revive disinvestment receipts without signalling an abrupt retreat from state ownership, aligning fiscal objectives with market conditions. Since 2016, approvals have been granted for strategic disinvestment in 36 public sector enterprises, though execution has lagged, the Survey noted.
She also pointed to the Survey’s upward revision of India’s potential growth rate to 7 per cent and the government’s projection of real GDP growth of 6.8–7.2 per cent in FY27 as reinforcing confidence in medium-term prospects, provided reforms continue.
At the same time, Mittal cautioned that the global backdrop remains fragile. The Survey flags geopolitical risks, volatile capital flows and concerns around leverage in global technology investments, all of which could affect emerging markets with a lag.
“The message is that India cannot rely on services alone or on protectionist shortcuts,” Mittal said. “Manufacturing-led exports, disciplined by global competition and supported by lower input costs, are the only durable route to reducing external vulnerability and the cost of capital.”
In her assessment, the Survey makes clear that the forthcoming budget will prioritise infrastructure, manufacturing and fiscal credibility over populist expansion, setting the tone for policy continuity in an increasingly uncertain global environment . |
