Economist Rathin Roy Delivers Scathing Critique of Central Budget 2026 in Hyderabad Address
In a thought-provoking address delivered in Hyderabad on Saturday, distinguished economist Rathin Roy launched a pointed critique of the Central Budget 2026, asserting that it provides no serious estimates or clear targets for what the Indian economy should achieve by the crucial milestone of 2030. Instead, Roy noted, the policy discourse has increasingly shifted its focus toward the symbolic year of 2047, a move he finds concerning for long-term planning.
Absence of Clear Economic Targets and Immediate Structural Challenges
Speaking at a discussion organized by the non-profit organization Manthan on 'The Fiscal Situation: India's Challenge, Peninsula's Quandary,' Roy, who previously served as an economic adviser to the 13th Finance Commission of India, emphasized the budget's failure to outline specific goals. "There are no clear targets in the budget for manufacturing share, export growth, poverty reduction, or employment generation," he stated unequivocally.
Roy argued that the more pressing issue is immediate and structural. "For me, the more urgent question is immediate and structural: unless youth unemployment, stagnant wages, and low productivity are addressed within this decade, long-term aspirations will remain merely rhetorical," he explained. He further warned that a nation cannot realistically aspire to greatness in 2047 if it fails to build economic strength by 2030, highlighting the interconnectedness of short-term actions and long-term outcomes.
Criticism of Finance Commission Formula and Shift to a 'Compensatory State'
Roy also directed criticism toward the 16th Finance Commission's allocation formula, which continues to heavily emphasize 'income distance'—a method that allocates more funds to poorer states to promote fairness. While this approach was initially intended to reduce disparities, Roy pointed out that the gap between states has not significantly narrowed, raising serious concerns about its effectiveness.
Additionally, he noted that incorporating 'contribution to GDP' as a factor—which measures how much a state adds to the national economy—provides only a minimal advantage to richer states, failing to adequately address economic imbalances.
More broadly, Roy contended that India has undergone a significant transformation from being a 'developmental state' to becoming a 'compensatory state.' This shift, he elaborated, stems from the government's increasing reliance on subsidies and transfers—such as food subsidies, housing schemes, and employment guarantees—designed to offset the failure of inclusive growth, rather than prioritizing investments in health, education, and productivity-enhancing initiatives.
"Health and education expenditures are now a fraction of compensatory spending. Such measures may be politically effective, but they reflect economic distress rather than prosperity," Roy asserted, underscoring the need for a fundamental reorientation toward sustainable economic policies.
Growing Economic Divergence Between Northern and Southern States
A key highlight of Roy's address was the growing economic divergence between northern and southern states. He illustrated this by comparing southern states like Tamil Nadu, Kerala, Karnataka, and Telangana, whose per capita incomes approach lower-tier G20 levels and are comparable in some respects to countries like Indonesia, with northern states such as Bihar, which lag behind even neighboring nations like Bangladesh and Nepal.
This situation, Roy stressed, creates a structural tension: political power remains concentrated in populous northern states, while economic dynamism has increasingly shifted southward, posing challenges for national cohesion and equitable development.
Skepticism on India's Aggregate GDP Ranking
Addressing India's achievement of becoming the world's fourth-largest economy in aggregate GDP terms—trailing only the US, China, and Germany—Roy expressed skepticism about its significance. "There is nothing wrong with saying that per se, but it does not reflect individual prosperity and high per capita income," he remarked.
Using the example of Mumbai's Dharavi slum, whose GDP could rival that of a small country, Roy emphasized that aggregate figures can be misleading. "Multiply a huge population by income and you get a big number. Saying we are fourth in aggregate GDP sounds impressive, but it means nothing in terms of widespread prosperity," he added, calling for a greater focus on per capita income and quality of life indicators.
Roy's comprehensive analysis in Hyderabad serves as a stark reminder of the urgent need for targeted economic policies, structural reforms, and a balanced approach to regional development to ensure India's sustainable growth and prosperity in the decades ahead.
