A Criticism of the Indian Union Budget: Infrastructure, Innovation, and the Question of Implementation

By: Ayat Ashraf

When the Smart Cities initiative was first announced by the Government of India, it carried a cinematic promise. One hundred cities would be transformed into modern, resilient, citizen-centric urban centers. There would be clean public spaces, digitized governance, and sleek infrastructure. Indeed, some cities saw upgraded transport corridors and enhanced surveillance, but gaps became increasingly difficult to ignore. Development was selective; informal settlements remained neglected. Moreover, communities affected by urban renewal were uninformed, projects moved slowly, and funds were underutilized. It revealed how India allocates its ambition; the aesthetics of progress outweighed questions of attainability. It is difficult not to see echoes of this pattern in the Indian Union Budget 2026-27. Presented on the first of February as a roadmap toward “Viksit Bharat” (Developed India) by 2047, the budget speaks to development—with higher capital expenditure, major transport corridors, semiconductor manufacturing incentives, and an emphasis on technology and AI-driven productivity.

A record ₹12.2 lakh crore ($132.1 billion USD) has been allocated to capital expenditure, implying that infrastructure will drive growth. On paper, it is an assertive budget. It’s praised for fiscal prudence, leaves corporate taxes largely untouched, offers some relief to middle-income taxpayers, and doubles down on manufacturing and technological ambition. Renewables are encouraged, though sustainability does not dominate the framework. Trade negotiations, particularly with the US and the EU, signal deeper integration into global markets, even as questions linger about tariffs and long-term trade balances. In a non-election year, it feels deliberately restrained and growth-oriented. Government expenditure has returned closer to pre-pandemic levels even as GDP grows. Inflation management is emphasized, but prudence alone does not guarantee stability.

Unemployment and stagnant wages remain pressing concerns. The middle class, often described as the engine of demand, faces growing household debt, largely because incomes have not kept pace with the rising costs of housing, education, healthcare, and everyday consumption. With interest rates relatively elevated, households are allocating a growing share of their income to EMIs and credit card repayments, which indicates that the cost of living has not disappeared, but shifted. While capital expenditure is expected to generate jobs and stimulate private investment, that outcome remains a gamble. This reduction of disposable income weakens consumption, the very demand that sustains domestic growth.

At the same time, youth unemployment and underemployment remain high, reflecting a structural gap between education and job creation. Emphasis on growth has been capital-intensive, and ignoring the root of what drives India’s population. Manufacturing investments do not immediately translate into broad-based employment. Sectorally, agriculture employs 30% of India’s workforce, but receives a relatively small share of the Union budget, a mere 3%. Announcements often carry promise without firm fiscal commitments. The reduction of emphasis on employment guarantee schemes such as the Mahatma Gandhi National Rural Employment Guarantee Act contrasts sharply with the celebration of AI and its applications. Technology is projected as the future, but the lack of access and rural distress remain unresolved.

Furthermore, health and education tell a similar story. Public health spending remains below 2.5% of the GDP, despite challenges like air pollution and inadequate rural facilities. Under the National Education Policy, India committed to spending 6% of GDP on education, yet actual expenditure remains closer to 4%, with the Union government contributing only a fraction, and most of the brunt being faced by state governments. Basic facilities in many schools are still lacking, which raises the question of how AI could even benefit a school without adequate infrastructure. It’s also difficult to ignore that investment in research and development is stuck at approximately 0.6% of GDP, which is incredibly modest for a country aspiring to be both a manufacturing and knowledge powerhouse. In many ways, India appears to be trying to leapfrog stages of economic development rather than building the very foundational capacity that sustained industrial transformation requires. 

Even revenue mobilization contains issues. Non-tax revenues increasingly rely on central bank dividends, which are not indefinitely sustainable. Meanwhile, key assumptions about trade balances and external financing—particularly amid evolving bilateral trade arrangements with the United States—are not fully transparent. With India historically running a surplus, large future import commitments could reshape that balance, potentially reducing India’s negotiating power. MSMEs (Micro, small, and medium enterprises), farmers, and domestic industries face ambiguity about future competitiveness in the light of recent trade negotiations and tariff structures. The proposed scenario where Indian exports could face duties as high as 18%, while certain imports enter at near 0% make smaller producers, already operating with thin margins, even more susceptible to policy volatility.

At its core, the budget reflects a specific theory of development: build infrastructure, incentivize manufacturing, attract capital, and growth will follow. But this is not possible considering India’s track record of expenditure mobilization. Government expenditure as a share of GDP has decreased even as the economy expands. Barely 41% of allocations were spent in the first nine months of the previous fiscal year. If funds are not utilized efficiently, these ambitious announcements boil down to being redundant. 

The experience of the Smart Cities initiative offers a revealing precedent. What began as a bold vision of modern urban transformation ultimately exposed the limits of ambitious policy announcements unsupported by effective implementation and resource utilization. Thus, by skipping important steps, India continues to risk its development through an overreliance on premature ambitions.

The Indian Union Budget 2026-27 is fiscally cautious and seeks macroeconomic stability and global competitiveness. But the larger question looms: can prudence without deeper social investment—and actual mobilization of funds—deliver the transformation India envisions, or will that vision remain hollow?