In the summer of 1991, India’s most radical decision was not liberalisation. It was honesty. The government acknowledged that the old model had exhausted itself and that incrementalism would no longer suffice. Budget 2026 arrives at a quieter but comparable moment. Growth is respectable, balance sheets are healthier, and yet something fundamental feels constrained. Not by demand, but by design.
This budget will not be judged by how much it spends. Fiscal space is thin, and everyone knows it. The real test is whether it is willing to question the architecture of the Indian state itself.
India’s policy debate is still framed as if the problem were stimulus versus consolidation. That debate is largely obsolete. With less than ₹1 lakh crore of true discretionary space, macro tinkering is mostly symbolic. Even a perfectly targeted tax cut would struggle to move the needle.
The binding constraint is not money. It is throughput, i.e., how quickly decisions are made, contracts enforced, capital deployed, land assembled, customs cleared, credit priced, and cities serviced. It is important to acknowledge that India suffers from institutional drag.
If Budget 2026 limits itself to tariff tweaks, capex continuity, and incremental deregulation, it will stabilise growth. But it will not raise the frontier. Hence, one could propose five radical reforms in the 2026 budget.
First is to radically rationalise (and eliminate) the existing plethora of centrally sponsored and central sector schemes. India still governs through hundreds of schemes, many of which have outlived the problem they were meant to solve. The radical step is also to have mandatory sunset clauses.
Every centrally sponsored scheme above a threshold size should carry a statutory expiry date of five years, extendable only after an independent cost–benefit review tabled in Parliament. No extension by default. This single change would force outcome measurement, reduce fiscal inertia, and free administrative bandwidth.
Advanced states do not grow faster because they spend more; they grow faster because they stop spending on what no longer works.
Second is to nudge the state to improve the quality of spending. India’s fiscal stress is increasingly migrating to states, but the Centre still absorbs the credibility risk. The solution is not tighter ceilings alone. It is conditional flexibility. Budget 2026 should propose a dual-track state borrowing framework. (1) A hard 3 per cent GSDP deficit ceiling by default. (2) An automatic additional borrowing window only for states that meet predefined reform metrics: urban property tax coverage, power distribution losses, time-bound approvals, and judicial backlog reduction.
This replaces discretionary negotiations with rule-based incentives. States are not punished for borrowing; they are rewarded for governing.
Third is to treat Customs as economic infrastructure and not tax administration. India still runs customs as a revenue-protection agency in an economy where growth depends on speed, not tariffs. The radical move is to separate trade facilitation from revenue enforcement institutionally, not just procedurally. A dedicated Trade Facilitation Authority, with statutory timelines, deemed clearances, and binding dispute resolution, should sit alongside, not within, traditional customs administration. Think of it as the National Highways Authority model applied to borders. If exports are the objective, ports and customs must behave like infrastructure, not checkpoints.
Fourth, end the fiction of cheap capital. India’s cost of capital remains structurally high because government borrowing crowds out risk pricing. The usual response is gradual fiscal consolidation. Necessary, but insufficient. The more radical step is to explicitly unbundle household savings from sovereign financing over time. A phased reduction in mandatory holdings of government securities for banks and insurers, paired with a parallel deepening of long-duration corporate bond markets, would allow risk to be priced properly.
This is uncomfortable reform. It weakens the state’s captive investor base. But it strengthens the economy’s allocative efficiency. No country has industrialised at scale with permanently distorted capital prices.
Fifth, stop governing innovation through grants. India has started funding research generously, but it still governs innovation timidly. The missing link is not money, but procurement. Budget 2026 should institutionalise mission-linked public procurement, where ministries are mandated to buy solutions, not fund proposals. Clean water, grid-scale storage, defence logistics, and municipal waste can each be framed as a demand signal rather than a grant programme. The most powerful innovation agencies globally do not pick winners, but they also place orders.
Sixth, it is an opportune time for urban reforms. Urban India remains trapped in a fiscal adolescence, dependent on transfers, unable to borrow, and incapable of monetising its own growth. A genuinely radical budget would (a) nudge states to adopt double-entry accrual accounting for all million-plus cities within three years. (b) Allow creditworthy cities to issue pooled municipal bonds without state guarantees. (c) Tie future central urban transfers (through any central sector scheme) to demonstrated improvements in own-source revenue. Cities that cannot price land, water, waste, and transport will never become productivity engines, no matter how much capital they receive.
None of these reforms require fiscal fireworks. They require political comfort with rule-based governance and a willingness to let institutions, not discretion, do the heavy lifting. India has reached a stage where growth is no longer constrained by policy intent but by policy mechanics. Budget 2026 can either reaffirm the existing operating system or quietly begin rewriting it.
In 1991, India liberalised markets because the state had run out of money. In 2026, it must reform the state because the economy has outgrown it. That would be a truly radical budget.
(The author (X: @adityasinha004) writes on macroeconomic and geopolitical issues. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.)
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