Budget 2026 Faces Criticism for Potentially Deepening Economic Divides
As India navigates global uncertainties and domestic economic challenges, the Union Budget 2026 has sparked significant debate among economists and policy analysts. The budget arrives during a period marked by sluggish domestic investment, consumption concerns, and distress in personal incomes—trends corroborated by multiple data sources including government statistics and private surveys.
Expenditure Compression Raises Red Flags
While the budget has successfully reined in the fiscal deficit, this achievement comes with substantial trade-offs. The revised estimates for 2025-26 reveal an overall expenditure reduction exceeding Rs 1 lakh crore, stemming from decreased capital and revenue expenditure. This compression has particularly impacted vital sectors including urban and rural development, social welfare, education, health, and agriculture.
The gap between budget commitments and actual expenditures raises serious questions about policy implementation. When crucial areas bear the brunt of expenditure cuts to maintain fiscal discipline, the fundamental purpose of budgetary allocations becomes questionable.
Tax Policy and Rural Economy Concerns
The budget's approach to taxation has drawn particular scrutiny. Substantial handouts to the middle class through income tax cuts and GST rationalization have resulted in significant tax revenue shortfalls. These measures have failed to stimulate private investment demand, while the strategy of meeting fiscal targets through sectoral expenditure compression is unlikely to revive broader economic demand.
Perhaps most concerning is the budget's treatment of the rural economy, which faces persistent distress despite its crucial role in employment generation. Rural wage growth has slowed considerably, remaining nearly stagnant for a decade. The apparent economic stability often cited is largely driven by deflationary trends in agricultural prices, which mask the reality of declining price realization for most farmers.
Most major crops have seen farm-gate prices fall below minimum support price levels, while increased agricultural employment suggests weakening in the non-farm economy. This budget presented a critical opportunity to revitalize rural areas through boosted public spending to increase demand and initiate economic revival—an opportunity largely missed according to analysts.
Agricultural Sector Faces Budgetary Neglect
The agricultural sector reveals troubling patterns of underspending compared to even conservative budget estimates from recent years. Budgeted expenditure for 2026-27 actually falls below actual expenditure from 2024-25, with crucial productivity-enhancing programs experiencing significant cuts.
Notable omissions include allocations for pulses, vegetables, fruits, and hybrid seed missions, while agricultural research and education budgets have been reduced compared to revised 2025-26 estimates. Although the budget emphasizes plantation crops—particularly relevant for upcoming elections in Kerala, Tamil Nadu, and Puducherry—this focus hasn't translated into increased allocations.
Similarly, livestock and fisheries sectors, which have demonstrated impressive growth exceeding 7% over the past decade, receive scheme announcements without corresponding budgetary increases. Most concerning is the near absence of initiatives or allocations for the crop sector, which employs the majority of agricultural workers.
Devolution Changes and Regional Implications
A significant structural concern emerges from the 16th Finance Commission's suggested changes to horizontal devolution. The revised formula increases shares for relatively better-off states including:
- Kerala
- Karnataka
- Haryana
- Punjab
- Gujarat
This redistribution comes at the expense of central transfers to economically weaker states such as:
- Bihar
- Uttar Pradesh
- West Bengal
- Chhattisgarh
- Madhya Pradesh
These states already struggle with weak financial positions, inadequate infrastructure, and suboptimal human development outcomes. The combined effect of budgetary cutbacks and altered financial devolution could exacerbate regional inequalities and hinder progress on essential development indicators nationwide.
Broader Social Sector Implications
The budget demonstrates a concerning trend of shifting social sector expenditure burdens to state governments. The introduction of mechanisms like VB-G RAM G exemplifies this approach, occurring alongside declining transfers to states under centrally sponsored schemes.
This combination of reduced central support and altered devolution formulas creates a perfect storm for widening economic disparities. As states with greater needs receive diminished resources, while relatively affluent states gain larger shares, the fundamental goal of balanced regional development faces serious challenges.
The budget's approach raises fundamental questions about India's development trajectory at a critical juncture in the nation's economic journey.
