As global markets face trade wars and geopolitical uncertainties, India enters Budget season from a position of relative strength. A Balasubramanian, MD & CEO of Aditya Birla Sun Life AMC, outlines key priorities for Budget 2026, emphasizing policy continuity, bond market development, and domestic funding mechanisms as essential elements for sustained growth.

India's Strategic Position Amid Global Challenges

Balasubramanian highlights India's historical resilience during global crises, noting that the country has consistently emerged stronger when faced with sanctions, trade wars, or geopolitical risks. He emphasizes India's current "sweet spot" position, particularly on the fiscal front where the country stands out among global economies facing fiscal challenges.

The Make in India initiative, launched in 2017, has evolved significantly from the initial debate of "make in India for India" versus "make in India for the world." Today, India produces a large number of goods domestically for both local consumption and exports, demonstrating the success of this strategic approach.

Real Asset Creation and Capital Allocation

India's focus on creating tangible hard assets distinguishes it from other economies. Over recent years, nearly ₹11.00 lakh crore has been allocated towards building India's manufacturing capability, incentivizing manufacturing companies while improving self-sufficiency across multiple sectors.

The government's capital expenditure has targeted several key areas:

• Defence manufacturing and self-sufficiency
• Renewable energy infrastructure
• Roads, ports, and airports development
• Rural infrastructure investment
• Inland water transport and logistics

Balasubramanian notes that these sectors can absorb significantly more capital to become not only self-sustainable but also strong suppliers to global markets. The focus on real asset creation contrasts with other economies where capital expenditure largely revolves around areas like AI.

Market Valuations and Investment Outlook

Regarding market valuations, Balasubramanian observes that Indian equity markets have undergone a necessary correction over the past two years. The Nifty and Sensex have generated single-digit returns, while small and midcap segments have experienced significant underperformance, effectively correcting excess valuations from earlier periods.

The market has undergone what he describes as a "time-value correction," positioning it for potential momentum return driven by earnings recovery and government-led reforms. Various economic measures, including interest rate cuts and GST reductions, are expected to reflect in corporate earnings over the coming years.

Budget 2026 Expectations

Balasubramanian outlines three key expectations for Budget 2026:

Policy Continuity: The budget should demonstrate continuity in tax provisions that have contributed to India's growth story. Current tax incentives should be maintained to support ongoing economic momentum.

Bond Market Development: Fixed income as an asset class requires attention to create a vibrant bond market comparable to India's equity market. Both capital market asset classes must work together to fund future growth, making India more self-sufficient in meeting its funding needs.

Domestic Funding Mechanisms: Strengthening domestic funding capabilities will reduce dependence on external capital flows and support sustained economic growth.

Foreign Investment and Currency Dynamics

Despite some foreign institutional investor outflows, Balasubramanian remains optimistic about future inflows. He notes that many private equity investors who invested in India have exited with substantial profits, creating strong potential for their return. With the rupee-dollar rate around 93.00 and expected interest rate reductions, India is likely to become more attractive among emerging markets.

The country's alignment with the Viksit Bharat vision, maintaining growth visibility of 7.50% to 8.00%, strong corporate earnings visibility, and a robust investment environment should naturally attract foreign institutional investors without requiring additional taxation-led initiatives.

Balasubramanian concludes that India's quiet achievements in fiscal consolidation, real asset creation, and capital market maturity have established a strong foundation for sustained growth, positioning the country advantageously amid global economic challenges.

Source: https://economictimes.indiatimes.com/markets/expert-view/etbudget-boardroom-budget-2026-should-focus-on-continuity-bond-market-development-and-funding-indias-growth-internally-a-balasubramanian/articleshow/127126609.cms

A detailed economic analysis emphasizes the strategic importance of maintaining public capital expenditure focus in India's upcoming Budget 2026-27, highlighting infrastructure investment's proven multiplier effects and structural economic benefits.

Infrastructure Investment Delivers Strong Multiplier Effects

The analysis reveals that infrastructure spending generates significantly higher economic returns compared to consumption expenditure. While consumption spending typically delivers one-time benefits, infrastructure investment creates sustained economic impact through job creation, cost reduction, and productivity enhancement.

This multiplier effect stems from infrastructure's dual impact: immediate demand creation across multiple sectors during construction, followed by ongoing productivity improvements from completed assets.

Capital Expenditure Growth Shows Substantial Expansion

Central government capital expenditure has demonstrated remarkable growth trajectory, reflecting the administration's commitment to infrastructure-led development.

The substantial increase in capital allocation demonstrates the government's strategic positioning of infrastructure investment as the primary instrument for achieving ambitious economic targets.

Logistics Efficiency Improvements Exceed Expectations

Recent research has revealed significant improvements in India's logistics performance, contradicting earlier pessimistic assessments. A comprehensive study commissioned by the Department for Promotion of Industry and Internal Trade and conducted by the National Council of Applied Economic Research has provided updated logistics cost data.

These improvements reflect tangible benefits from sustained investment in highways, rail freight corridors, port modernization, and multimodal logistics infrastructure. The enhanced efficiency directly supports manufacturing and export competitiveness through reduced operational costs.

Private Investment Catalyzed by Public Infrastructure

Public infrastructure investment has demonstrated its effectiveness in stimulating private capital formation rather than crowding it out. Improved connectivity and reduced project risks have enhanced returns across multiple sectors:

• Manufacturing facilities benefit from better transport connectivity
• Logistics operations gain from improved rail and highway networks
• Renewable energy projects leverage enhanced power transmission infrastructure
• Data centers capitalize on improved digital backbone
• Urban services expand with better infrastructure foundation

This catalytic effect positions public capital expenditure as a strategic tool for anchoring long-term investment cycles and shaping positive market expectations.

Strategic Recommendations for Budget 2026-27

The analysis identifies three critical areas for optimizing infrastructure investment effectiveness in the upcoming budget:

High-Multiplier Focus Areas:

• Logistics infrastructure development
• Urban infrastructure expansion
• Power transmission networks
• Renewable energy integration
• Digital infrastructure backbone

Private Capital Integration:

• Enhanced public-private partnerships
• Strategic asset monetization programs
• Blended finance mechanisms

Execution Quality Improvements:

• Streamlined approval processes
• Milestone-linked funding mechanisms
• Enhanced monitoring systems
• Faster ground-level asset delivery

The expert analysis concludes that capital expenditure represents more than budgetary allocation—it constitutes a comprehensive economic strategy. As global growth faces uncertainty and domestic pressures mount, maintaining infrastructure investment focus provides stable economic anchoring while supporting long-term growth objectives. The approach signals policy continuity to markets and investors planning substantial capital commitments, reinforcing India's commitment to sustainable, inclusive economic development.