The Budget of Diminished Horizons, A Structural Critique of India’s Economic Plateau

The Budget of Diminished Horizons, A Structural Critique of India’s Economic Plateau

The Union Budget for 2026-27, as dissected by former Union Minister and MP Manish Tewari, is presented not as a blueprint for a “Viksit Bharat” (Developed India), but as a stark “testament to an economy running on fumes.” In a searing critique titled “The profound challenges the Budget ignored,” Tewari dismantles the document’s moderate fiscal veneer to reveal a landscape of structural decay: a dangerously decelerating economy, an unsustainable debt trap, a moribund private sector, and a government retreating from its social obligations. This analysis, coupled with ancillary public letters on parliamentary disorder and sporting success, paints a complex portrait of a nation at a crossroads—celebrating micro-victories on the cricket field while its macroeconomic foundations show alarming cracks. Tewari’s argument posits that the budget is not a corrective but an accommodation of a “slower, humbler reality,” a document of “managed decline” that chooses to ignore profound challenges rather than confront them.

Part I: The Structural Plateau: From Boom to Stagnation

Tewari’s central thesis hinges on a critical metric: nominal GDP growth. This figure, which combines real growth with inflation, is the “true lifeblood of government revenue and private sector pricing power.” He contrasts the heady days of 14-20% nominal growth in the mid-2000s with the “pedestrian eight per cent” projected for 2026-27. This precipitous decline is framed not as a temporary downturn but as a “structural plateau.” The economy, in his view, has lost its momentum-generating engines. The Budget’s acceptance of this slower growth, without a transformative plan to reignite it, is its first and greatest failure. It signals an administration that has downsized its ambitions to fit “diminished horizons.”

This slowdown is the bedrock upon which all other fiscal fragilities are built. Lower nominal growth directly translates to weaker tax revenues, as evidenced by the “plummeting” tax buoyancy of 0.6 (revenue growing at only 60% of GDP growth). This creates a vicious cycle: to meet deficit targets, spending is cut, which further suppresses demand and growth, leading to even weaker future revenues. The budget, therefore, operates within a tightening noose of its own making.

Part II: The Debt Trap and the Illusion of Capex

Beneath the headline fiscal deficit of 4.3% of GDP lies what Tewari terms an “alarming and unsustainable reality”: a debt mountain. Government liabilities are projected to explode from ₹56.51 lakh crore in 2013-14 to ₹214.8 lakh crore by 2026-27. Servicing this requires a staggering ₹14.04 lakh crore in interest payments, consuming 20 paise of every rupee the government spends. This is the budget’s original sin, creating a fiscal “black hole.”

The catastrophic implication is laid bare: with a fiscal deficit of ~₹17 lakh crore, a colossal portion of fresh borrowing is not financing new roads or schools, but is “merely being recycled to service past debts.” This debt service “crowds out” private investment by sucking up available capital from the financial markets. It renders the government’s much-celebrated pivot to capital expenditure (capex)—rising to 23% of outlay—a narrative that “collapses under the weight of this interest burden.”

The capex push, Tewari argues, was a supply-side bet designed to “crowd in” private investment. This bet has “failed.” Despite corporate tax cuts and Production-Linked Incentive (PLI) schemes, private corporate investment remains “moribund.” The reason is a fundamental lack of demand. Private Final Consumption Expenditure has stagnated and fallen as a share of GDP. Households, squeezed by inflation and low wage growth, are not spending. With “unemployment curiously highest among the educated youth,” the demand signal for the private sector to build new factories never materialized. The government built supply, but the demand was not there to meet it.

Part III: The Retreat from the Social Contract and Cynical Execution

Constrained by weak revenues and the debt-service millstone, the government’s response, per Tewari, has been a “draconian suppression of spending” dressed as fiscal prudence. He cites devastating mid-year cuts to critical social and developmental programmes:

• Jal Jeevan Mission (rural water): Cut by over 70%.

• PM Awas Yojana (Urban housing): Cut by nearly two-thirds.

• Labour, Employment & Skill Development: Budget more than halved, from ₹32,496 crore to ₹12,759 crore.

For a nation facing a water crisis, an urban housing shortage, and “jobless growth,” these cuts are not just austerity; they are, in Tewari’s view, a strategic retreat from the social contract. The proposed restorations in the next budget are labeled a “cynical, confidence-eroding pantomime,” creating a “Potemkin village of allocations” that bear no relation to actual on-ground expenditure. This reveals a government “skilled at announcement but bankrupt in execution,” eroding public trust in its commitments.

Part IV: The Desperate Gambit: Stealth Liberalisation and Asymmetric Trade

With its domestic demand strategy in tatters, Tewari argues the 2026-27 Budget retreats into a defensive, supply-side shell. Its “central, silent gamble” is an unprecedented, “stealthy liberalisation” of customs tariffs on electronics, semiconductors, aviation parts, and green energy inputs.

He frames this not as proactive industrial policy, but as a “deliberate concession to long-standing US trade demands,” a prerequisite to the recently announced trade agreement. This sequencing, he contends, has rendered the deal “structurally skewed.” India is unilaterally lowering barriers to signal “compliance and goodwill” to Washington without securing “reciprocal benefits” or “compensatory access” for its own sectors. The result is a policy that is “anti-farmer, anti-MSME, and fiscally costly,” exposing vulnerable domestic manufacturers to “asymmetric competition.” The strategy appears oriented toward “managing optics in Washington at the expense of the Indian fisc, agriculture, industry, and livelihoods.”

This critique connects the budget’s micro-measures to a macro-surrender of strategic autonomy in trade policy, prioritizing geopolitical positioning over protective industrial development.

Part V: The Macroeconomic Failure and the “Viksit Bharat” Mirage

Tewari underscores the budget’s failure by pointing to stagnant macroeconomic ratios, the true markers of structural health:

• Gross Fixed Capital Formation (Investment): Stuck at 33% of GDP, down from over 38% in 2012-13.

• Exports/GDP: Shrunk from 24.9% (2013-14) to 21.5%.

• Gross Domestic Savings: Stagnant around 30%.

These metrics reveal an economy unable to transition to a more productive, investment- and export-driven model. The vision of a “Viksit Bharat” is, in his view, “betrayed” by paltry commitments to frontier technologies. He contrasts China’s $40 billion for semiconductors and $56 billion for AI with India’s “tentative $4.5 billion” and “paltry $1.2 billion over five years.” The ambition is outsized, but the resource commitment is meager and reliant on fickle foreign capital.

Part VI: The Echo Chamber of Discontent and Distraction

The accompanying public letters in the image provide a poignant, if unintentional, context to Tewari’s economic dirge. The “Furore in House” letter bemoans a Parliament where hatred and disruption have replaced debate, making the sovereign institution, which is meant to scrutinize budgets like this one, dysfunctional. This political decay mirrors the economic stagnation—a breakdown of consensus-building and purposeful governance.

Conversely, the celebration of the U19 World Cup victory and Vaibhav Suryavanshi’s “iconic knock” represents the nation’s powerful capacity for hope and excellence in contained, non-political arenas. Yet, it also acts as a potential societal opiate, a glorious distraction from the “profound challenges” being ignored in the halls of power. The teacher’s letter on exam pressure speaks to a societal anxiety about the future that is directly linked to the “jobless growth” and slashed skill development budgets Tewari highlights.

Conclusion: A Whisper, Not a Roar

Manish Tewari’s critique is ultimately a lament for a lost potential. The 2026-27 Budget, in his assessment, is the product of a government navigating the “constraints of a weakened mandate and a weakened economy.” It is a document of consolidation, not transformation; of accounting, not vision. By focusing on fiscal deficit optics while ignoring the debt tsunami, by cutting social spending while failing to spur private investment, and by pursuing asymmetric trade liberalization, the government is, in his view, managing a decline rather than engineering a renaissance.

The budget “will be remembered not for what it achieved, but for the profound challenges it chose to ignore.” It is a “calculated murmur” in a moment that demands a clarion call. In the face of a structural economic plateau, it offers not a new engine, but a gentle acceptance of a slower speed. Whether this is prudent realism or a fatal failure of ambition is the central question Tewari’s analysis forces the nation to confront, even as it celebrates its cricketing prodigies and despairs at its parliamentary chaos. The disconnect between micro-victories and macro-drift defines India’s current, precarious moment.

Q&A Section

Q1: Tewari emphasizes “nominal GDP growth” as the key metric, not just real GDP. Why is nominal growth so critical, and what does its decline to 8% signify about the state of the economy?

A1: Nominal GDP growth is critical because it reflects the money value of all goods and services produced, incorporating both real output growth and inflation. It is the true measure of an economy’s “pie” in current price terms. It is the lifeblood for two reasons: 1) Government Revenue: Tax collections (income tax, GST, corporate tax) are levied on nominal values. Slower nominal growth means slower revenue growth, constraining the government’s ability to spend. 2) Private Sector Pricing Power: For companies, revenue and profit growth are in nominal terms. Weak nominal growth indicates an economy where businesses struggle to raise prices or increase sales value, squeezing margins and discouraging investment. A decline to 8% nominal growth (from historical highs of 14-20%) signifies a severe economic slowdown. It suggests that even modest real growth (say, 5-6%) is accompanied by very low inflation (~2-3%), which can be a symptom of weak demand. It signals an economy that has lost momentum, where neither prices nor volumes are rising robustly, creating a low-velocity environment that stifles government and corporate finances alike.

Q2: The analysis argues that high debt servicing costs “crowd out” private investment. Explain the mechanism of this crowding-out effect in the context of India’s financial markets.

A2: The crowding-out effect occurs because the government and private companies compete for a finite pool of domestic savings available for borrowing. When the government runs a large fiscal deficit, it must borrow heavily by issuing bonds (G-Secs). To make these bonds attractive, especially when issuance is massive, the government may need to offer higher interest rates. This has a dual effect:

• Direct Absorption of Capital: Banks, insurance companies, pension funds, and other financial institutions use a significant portion of their investable funds to buy these government bonds, leaving less capital available for lending to private businesses.

• Higher Interest Rates for Everyone: The government’s high demand for loans pushes up the overall interest rates in the economy. Even if private companies can access loans, they must now pay more to borrow. This makes new projects (factories, expansions) less profitable and deters investment.
  Tewari’s point that a large part of new borrowing (₹17 lakh crore deficit) is just to pay old interest (₹14 lakh crore) means the government is a perpetual, massive borrower in the market, continuously sucking out capital and keeping the cost of that capital high, thereby “crowding out” private sector borrowers who are the true engines of job creation and innovation.

Q3: Tewari dismisses the government’s capex push as a failed strategy because private investment didn’t follow. Is this a fair critique, and what, according to the analysis, was the missing link that caused this failure?

A3: It is a fair critique based on the observed outcome. The government’s theory was that building infrastructure (roads, railways, logistics) would lower costs for businesses, improve efficiency, and create a positive environment that would “crowd in” or encourage private companies to invest in their own capacity. The missing link, as Tewari identifies, was final demand. You can build the best road to a factory, but if no one is buying the factory’s products, the owner won’t build the factory. The analysis points to stagnating Private Final Consumption Expenditure (PFCE) as the core problem. Household demand is weak due to:

• High Inflation eroding purchasing power.

• Low Wage Growth in a predominantly informal economy.

• High Educated Unemployment, meaning even potential high-earners aren’t earning.
  Without strong consumer demand, the private sector sees no reason to invest in new capacity, regardless of how good the infrastructure is. The government’s bet was a supply-side solution to a demand-side problem. It built the “field” (infrastructure), but the “players” (private companies) didn’t show up because there were no “spectators” (consumers with spending power).

Q4: The critique labels customs duty reductions as a “stealthy liberalisation” and a concession to the US. How does this perspective differ from the government’s likely framing of these cuts as boosting “Atmanirbhar” manufacturing?

A4: The perspectives are diametrically opposed:

• Government Framing (Likely): The duty cuts on components (semiconductors, electronics parts, clean energy inputs) would be framed as a strategic move to reduce input costs for domestic manufacturers. Cheaper imported components would make Indian-made finished goods (like smartphones, EVs, solar panels) more cost-competitive, both in India and for export. This would be sold as strengthening “Atmanirbhar Bharat” by making final product manufacturing in India more viable.

• Tewari’s Critique: He views this as a forced, asymmetric concession. The cuts are not broad-based industrial policy but are targeted at sectors where the US has strong export interests. He argues the sequencing—cutting duties before or as a precondition for a trade deal—means India gave away leverage without securing guaranteed market access for its own goods (like textiles, agriculture, pharmaceuticals). This makes it “anti-MSME” as smaller Indian component makers will be wiped out by cheaper imports, and “fiscally costly” as it reduces customs revenue. In his view, it strengthens foreign manufacturers’ supply chains into India, not India’s sovereign production base. It’s about integration on terms favorable to foreign capital, not self-reliance.

Q5: The article concludes by calling the budget a document of “managed decline.” What, according to the analysis, would a bold, corrective budget have looked like, addressing the “profound challenges” instead of ignoring them?

A5: A bold, corrective budget, per the logic of Tewari’s analysis, would have needed to break the vicious cycles he identifies. It might have included:

1. A Honest Debt Management Plan: Beyond deficit targets, a transparent roadmap to cap and reduce the debt-to-GDP ratio, potentially involving strategic asset monetization to retire expensive debt, rather than just rolling it over.

2. A Direct Demand Stimulus: Instead of just supply-side capex, significant direct transfers or tax cuts targeted at the bottom 60% of households to boost consumption expenditure (PFCE) immediately. This could have been funded by a steeper fiscal deficit in the short term, justified as an emergency measure to break the demand drought.

3. Protection of Social & Human Capital Spending: No cuts to Jal Jeevan, PMAY, or Skill Development. Framing these not as welfare, but as essential investments in public health (reducing future costs), urban infrastructure, and creating a employable workforce—the prerequisites for sustainable growth.

4. A Strategic, Not Submissive, Trade/Industrial Policy: Customs reforms would be part of a clear, negotiated reciprocity within the US trade deal, with phased reductions linked to verifiable US market access for Indian goods and safeguards for sensitive MSME sectors.

5. A Mega Public-Private Investment Pact: A grand bargain with large corporate houses, offering even more streamlined clearances and long-term policy certainty in exchange for firm, time-bound commitments to large-scale greenfield investments and job creation, de-risking the demand side for them.
   Such a budget would have been high-risk, breaking from fiscal orthodoxy to directly address the demand crisis and strategic vulnerabilities Tewari outlines, rather than accommodating a “slower, humbler reality.”