Editorial     

Published: January 31, 2026
Updated: January 31, 2026

Challenges before the FM

Once again, it is time for the presentation of the Union budget. Having completed discussions with various stakeholders, Finance Minister Nirmala Sitharaman is set to present the estimated income and expenditure for the country for fiscal year 2026-27 in Parliament on Sunday, February 1.

However, at this juncture, preparing a national budget will not have been an easy task for Mrs Sitharaman as the presentation of the estimated Rs 52 lakh crore comes at a time when the global environment is vitiated by growing geopolitical tensions and economic uncertainties created by a ‘tariff-hungry’ US President Donald Trump.

Fortunately, even in this challenging situation, the Indian economy is fundamentally strong, even though the projections put forward by the Modi government of 8.2 per cent GNP growth for Q3FY26 are considered exaggerated and over-optimistic. As a matter of fact, even the figures of 6 and 7 per cent put forward by various experts are robust in the prevailing global economic scene. Even at these rates, India has emerged as the fastest growing economy in the world, as most of the developed countries are growing at a rate between 2 and 3 per cent.

What is more, the domestic situation is getting better. Retail inflation, which has been ravaging the Indian economy in recent years, has come under control and is being projected at around 3.8 per cent for fiscal 2027. For the current financial year ending March 2026, Ind-Ra, a well-known rating and research agency, has pegged real GDP growth at 7.4 per cent. The IndRa report also pinpoints an improvement is government finances. The Centre’s debt is projected to ease to 55.5 per cent of GDP in fiscal 2027 from an estimated 56.3 per cent this year. The government aims to bring down this ratio to around 50 per cent over the next 3-4 years.

Consequent to the US ‘tariff war’ against India, the Indian government has concluded free trade agreements with other countries, especially with New Zealand, the UK and Oman. These pacts could help keep the current account deficit in check by attracting more overseas capital. The fiscal deficit for the current year is projected to remain in the budgeted 4.4 per cent of GDP, or Rs 15.69 lakh crore in absolute terms.

However, a vitiated global environment and the tariff war waged by the US President are bound to raise certain challenges for the Indian economy, and the Finance Minister will need to tackle these. For example, considering that Indian exports may suffer on account of the US tariffs, the Indian government may have to enter into free trade agreements with multiple countries, including the US.

Again, the monster of unemployment is raising its ugly head, accentuated by new technologies like Artificial Intelligence as well as by the current trend in countries like the US and Canada to send back immigrants, including Indians, to their home countries in order to ensure employment for local people. What’s more, the Indian currency is weakening day by day, with the rupee tumbling to Rs 92 to the US dollar. This may create an inflationary price spiral in the country.

Again, foreign investors have started withdrawing their funds from India to invest in countries where the returns are higher and whose governments have started offering liberal stimuli. Ergo, the Finance Minister will have to devise some innovative and effective measures to attract foreign capital.

According to experts, in order to encourage foreign entities to increase participation in the Indian economy, an optional presumptive tax scheme can be introduced for foreign entities engaged in technical consultancy, digital and e-commerce, and management and software.

At the same time, as a measure to increase India’s global competitiveness in a volatile geopolitical environment, providing additional incentives and benefits for exports may improve the country’s overall economic performance and its balance of trade and payments.