The past year has been marked by sweeping reforms, beginning with income tax cuts, followed by GST rationalisation and, most recently, the rollout of new labour codes. While these landmark changes have laid important groundwork, their full impact will only be realised through complementary measures that address specific bottlenecks and enhance implementation. Hence, policy attention should now turn to more focused, tactical, and targeted reforms to strengthen supply chains, create employment opportunities, unlock productivity gains, and enhance long-term growth prospects.
First, the Budget 2026-27 should prioritise building supply chain resilience and developing domestic capabilities in strategic sectors. It should focus on securing access to critical minerals such as lithium and rare earths by offering enhanced incentives for the exploration, extraction, and processing of these minerals from both domestic and international sources. The government should also actively diversify sourcing across multiple geographies through targeted policy interventions, particularly for vital imports such as integrated circuits, while domestic capabilities are being established.
Second, the Budget must continue prioritising job creation. Focus should be on labour-intensive manufacturing, particularly textiles, furniture, leather, and footwear, which have significant potential to generate employment. Supporting these sectors through reduced import duties on key inputs, well-equipped industrial parks, and targeted skill development programs would substantially boost low-skill employment opportunities. Enhanced export credit and concessional financing will also be critical to maintain their global competitiveness.
Third, the timely implementation of the 8th Central Pay Commission recommendations is essential. This would significantly boost consumption, as central pay revisions trigger corresponding adjustments across state governments and public-sector enterprises. Any delay would mean missing an opportunity to further strengthen the momentum generated by income tax cuts and GST rate reductions.
Fourth, the government should focus on improving urban infrastructure, which has come under extreme pressure from rapid urbanisation. The Budget should allocate resources for public transport, infrastructure maintenance, water conservation, waste management, and basic public amenities. To address both infrastructure gaps and employment challenges, the government should also introduce an urban employment guarantee scheme that would provide work for unskilled labourers on these critical priorities.
Fifth, innovation in strategic sectors requires stronger fiscal support. The government should establish dedicated funds for emerging technologies such as artificial intelligence (AI) and quantum computing, and expand R&D tax incentives by reducing corporate tax rates or extending tax holidays for companies investing in these areas.
Sixth, the Budget should prioritise health and education as foundational investments in human capital. India's high burden of non-communicable diseases demands significant investment in primary healthcare infrastructure. Effective prevention and treatment will boost labour productivity while protecting vulnerable populations from the financial burden of high out-of-pocket medical expenses.
Equally critical is preparing the workforce for technological disruption. AI-driven automation could fundamentally alter employment patterns across sectors, displacing low-skill jobs and driving a decisive shift toward high-skill roles. The government must proactively prepare for this transition by substantially increasing investment in skill development programs. Over time, meeting this challenge may require a fundamental redesign of the education system to equip the workforce for a rapidly evolving technological landscape.
Seventh, sustained efforts to improve the ease of doing business remain essential for productivity growth. The focus should be on simplifying administrative procedures, including streamlining GST registration and reducing tax compliance requirements. These measures are vital for streamlining everyday business operations and creating a more efficient economic environment.
Last, we expect the government to maintain its fiscal consolidation trajectory. The previous Budget announced a shift from fiscal deficit targeting to a debt-to-GDP framework, with a target of 50% ±1% by 2031. Our internal calculations suggest that achieving this goal would still require fiscal consolidation of 10-20 basis points annually.
While sweeping reforms capture attention, lasting transformation comes from well-executed, targeted interventions. The measures outlined above can deliver precisely such results, building a foundation for sustained economic growth.
Source: Budget Documents, 360 ONE Asset Research
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