Can the Three Kartyayas Be Realised? Assessing the Budget’s Strategic Vision
For a country that celebrates some sort of minor reforms—including in filing returns and easing tax compliance on direct and indirect taxes, rejuvenating industrial clusters, high-level committees on banking, municipal bonds, and a high-powered education-to-employment committee towards the services sector—the Union Budget 2026-27 presents a mixed picture. Incentives include support for IT and ITeS sectors, safe harbour policies, and other measures designed to stimulate growth.
Nudges include laying foundations for agglomeration of resource regions, cities, and other clusters for sustaining and accelerating growth through production and efficiency by maintaining the momentum of structural reforms, a resilient financial sector, and increased application of technology. Broadly, there are many minor policies—particularly concerning taxation—but collectively they intend to fix a much bigger ship.
The question is whether they will succeed.
The Risky Assumption
A risky assumption here seems to be that private investment would crowd in. Risky because India’s recent experience speaks otherwise—investors have been jumping ship. This is evident looking at the figures: the share of public sector in total real GFCF increased from 21.6 per cent in 2021-22 to 25.1 per cent in 2023-24, while private sector real investment fell from 37 per cent to 34.4 per cent.
Public investment has stepped up, but private investment has not followed. This is the opposite of what the budget assumes. The hope that government spending will crowd in private capital is not supported by recent trends. Instead, we are seeing public investment substituting for private, not stimulating it.
This matters because public investment alone cannot sustain growth indefinitely. The private sector is where most jobs are created, most innovations occur, and most economic dynamism resides. If private investment continues to decline, the budget’s growth projections will be difficult to achieve.
Three Critical Concerns
Apart from macroeconomic and global political concerns, there are three concerns we must weigh in to assess the success of the current budget proposals.
First is a pragmatic assessment of the fiscal resources the Union has and the fiscal limits it set for itself. Given that the government has put a limit on its fiscal deficit at 4.3 per cent of GDP and given the lower revised estimates of income tax, GST, and the changes in Union customs and excise, a careful assessment would be working within a reduced fiscal space. This is reflected in lower income tax and GST collections.
The fiscal deficit target is commendable from a credibility perspective, but it also means that the government has limited room to manoeuvre if revenues fall short or if the economy needs additional stimulus. The lower revised estimates suggest that revenues are already underperforming relative to expectations.
Further, the associated reduction in expenditure is reflected in lower Revised Estimates for 2025-26 towards capital expenditure, grants in aid for creation of capital assets, and reduction in Central Sector Schemes. The cuts are real and will have consequences.
Second, India’s expenditure on social services such as education, health and nutrition is low. It is true that much of social services expenditure is committed by the state governments. Strictly speaking, it is not possible to get a better assessment of social services without taking state governments’ spending into account.
Nonetheless, the fall in Central Sector Schemes will have repercussions at the state level also, in curtailing spending towards associated schemes. This would most likely worsen when the tax cuts, exemptions, and concessions given by the Union government reduces the shareable pool, if Union policies fail to produce the desired outcomes.
This affects the government’s second kartyaya—fulfilling people’s aspirations and building capacity, i.e., measures that constitute building aggregate demand. When social services are underfunded, when health and education suffer, the capacity of the population to participate in and benefit from growth is diminished.
Third, relying on agglomeration economies is one thing, ensuring there are forward and backward linkages and contribution to local regions is another thing. The type of capital expenditure matters. During 2024-25, nearly 22 per cent of capital expenditure was towards defence services. Other capex such as towards roadways and highways connect cities and improve free flow of capital and skilled force.
But spreading benefits requires engagement with state and local governments. This has to come through informed consensus and faith in decentralisation measures, wherein the state and local governments—being closer to the ground—are better at responding on access to amenities, resources, and the meaning of active participation of people (the third kartyaya).
Broadly speaking, while the Union government has an upper hand in strategising supply-side measures, it is the state and local governments which have a greater role in boosting the capacity of aggregate demand.
The Integration Challenge
The budget is strategic in its announcement with an intention to create growth in various sectors in the medium or long run. It also relies on many important outcomes, assumptions, and risks (possibly the government is aware of). Further, as the Union government over the years reduced spending on CSS and central schemes, it cannot be assumed that the Union budget is independent of state or local governments’ budgetary powers.
Integration and success of the structural reforms lie in ensuring that the state and local governments are on board. It cannot be a one-way street. The Union can set direction, but implementation depends on states and localities.
Conclusion: A Strategic Budget with Execution Risks
The Union Budget 2026-27 is strategic in its conception. It lays out a vision of growth through agglomeration, structural reform, and fiscal discipline. But its success depends on assumptions that may not hold—that private investment will crowd in, that revenue projections will be met, that states will compensate for Union cutbacks, that agglomeration benefits will spread to local regions.
These are significant ifs. The government is aware of them, but awareness is not the same as control. The budget can set the direction, but the journey depends on many actors and many factors beyond its reach.
The three kartyayas—fiscal discipline, fulfilling aspirations, and decentralised participation—are worthy goals. Whether they can be realised depends on execution, coordination, and a bit of luck. The budget provides a framework. The rest is up to the economy and the polity.
Q&A: Unpacking the Budget’s Strategic Vision
Q1: What is the “risky assumption” underlying the budget?
The budget assumes that public investment will crowd in private investment. However, recent data shows the opposite: public sector share in real GFCF increased from 21.6% to 25.1% between 2021-22 and 2023-24, while private sector real investment fell from 37% to 34.4%. Public investment is substituting for private, not stimulating it. This assumption is risky because private investment is crucial for jobs, innovation, and sustained growth.
Q2: What are the three kartyayas mentioned in the article?
The three kartyayas appear to be: (1) fiscal discipline—working within reduced fiscal space with a deficit target of 4.3% of GDP; (2) fulfilling people’s aspirations and building capacity through measures that constitute aggregate demand, including social services; and (3) ensuring decentralised participation where state and local governments boost aggregate demand capacity while Union focuses on supply-side measures.
Q3: How does the budget’s fiscal constraint affect social services?
India’s expenditure on social services like education, health, and nutrition is already low. The fall in Central Sector Schemes will have repercussions at the state level, curtailing spending on associated schemes. This could worsen if Union tax cuts reduce the shareable pool without producing desired outcomes. Underfunded social services diminish the population’s capacity to participate in and benefit from growth.
Q4: What is the significance of the type of capital expenditure?
The type of capex matters for spreading benefits. During 2024-25, nearly 22% of capital expenditure was towards defence services. While defence spending is necessary, it does not create the same forward and backward linkages as investment in roadways and highways that connect cities and improve flow of capital and skilled labour. Agglomeration benefits require engagement with state and local governments to ensure benefits reach local regions.
Q5: Why is integration with state and local governments crucial for budget success?
The Union government can strategise supply-side measures, but state and local governments are closer to the ground and better at responding to access to amenities, resources, and active participation of people. As the Union reduces spending on CSS and central schemes, it cannot assume the budget is independent of states’ budgetary powers. Success requires informed consensus, faith in decentralisation, and genuine partnership—not a one-way street.
