Budget 2026 is therefore best understood not as an exercise in spending allocation but as an inflection point in narrative construction. The narrative India must advance: aimed at investors, neighbouring governments, multilateral institutions, and its own citizens, is one that integrates demographic scale, technological capability, and fiscal prudence into a coherent labour-market transformation.
India enters the 2026 Budget cycle with a macroeconomic profile that many countries in the region would consider enviable: headline GDP growth above seven per cent for 2025; inflation broadly contained; a current account deficit that remains manageable; and a public-investment pipeline that has held steady despite external volatility. Yet the deeper structure of India’s economic position becomes clearer—and more consequential—when viewed through the lens of South Asia’s aggregate performance.
According to the most recent World Bank estimates, the region’s growth reached 7.1 per cent in 2025, but only because India expanded at 7.2 per cent, while the rest of South Asia averaged a far more modest 4.2 per cent. In 2026, the region is projected to slow to 6.2 per cent, recovering marginally to 6.5 per cent in 2027, but again, the driver is India. Remove India, and the region’s growth profile becomes fragile, uneven, and acutely sensitive to political uncertainty and climate shocks.
It is in this context that Budget 2026 acquires significance beyond the boundaries of fiscal arithmetic. It becomes the principal instrument through which India shapes not only its own trajectory, but the expectations, investment behaviour, and institutional stability of a region where political transitions in Bangladesh, Nepal’s governance disruptions, Sri Lanka’s ongoing consolidation, and the Maldives’ tourism dependence interplay with India’s policy choices. A budget of a country representing over 75 per cent of South Asia’s GDP is not merely domestic policy; it is a regional signal with macroeconomic consequences.
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The challenge and the opportunity before policymakers is therefore to align domestic fiscal priorities with India’s responsibility as the region’s stabilising force, while confronting the hard structural data that continues to constrain India’s long-term potential. The most binding of these constraints is the labour market. The 2023–24 Economic Survey states plainly that India must generate 8 million non-farm jobs annually until 2030 to accommodate its expanding working-age population. Yet the distribution of employment across sectors betrays the magnitude of the task. Agriculture still absorbs 46 per cent of the workforce while generating only 15 per cent of GVA, an imbalance that reflects large-scale disguised unemployment. Manufacturing, despite a decade of industrial schemes, employs only 11.4 per cent of workers, down from 12.1 per cent in FY18. Services, while contributing over 50 per cent of GVA, employ only 30 per cent of the labour force, largely anchored in low-wage segments such as trade and transport.
These figures delineate the central contradiction India must resolve: the productivity structure of the economy does not yet match its demographic profile, and the labour-market architecture does not yet support the regional leadership role India is assumed to play. A South Asia where Bangladesh’s growth prospects depend on continuity in Indian consumption, where Nepal’s remittance cycle is influenced by Indian labour-market conditions, and where Sri Lanka’s stabilisation gains require a predictable regional anchor cannot sustain itself on Indian GDP growth alone. It requires India to demonstrate that its growth has depth, labour absorption, and long-term institutional traction.
The Budget must therefore shift from the habitual focus on aggregate expenditure to a more granular strategy that reorients fiscal programmes toward structural employment generation. Three policy directions—grounded in data and supported by international evidence—can establish India’s credibility as South Asia’s stabiliser while addressing its domestic labour-market disequilibria.
The first policy direction concerns labour mobility. India’s employment challenge is not solely a matter of insufficient skills; it is profoundly shaped by the spatial mismatch between where the labour force resides and where productive employment is emerging. Districts with high agricultural employment often coexist with constrained mobility toward peri-urban manufacturing clusters, creating bottlenecks that suppress labour productivity. International experience—including Vietnam’s industrial corridor development and China’s hukou reforms—illustrates that mobility subsidies, transitional housing support, and relocation allowances can accelerate the shift from low-productivity to high-productivity work. A nationally structured Mobility Allowance targeted at workers aged 18–35, incorporating temporary accommodation, subsidised transit, childcare access, and priority placement in cluster-linked skilling programmes, would materially reduce frictions that currently inhibit movement. The fiscal cost would be modest relative to the long-term productivity gains; the regional spillover effects would be meaningful, as increased Indian manufacturing output stabilises subcontracting pipelines into Bangladesh and enhances consumption demand that supports Nepalese and Sri Lankan service exports.
The second direction concerns the conversion of Production-Linked Incentives (PLIs) into ecosystem-linked incentives grounded in measurable employment outcomes. Data from the first five years of PLIs shows that while capital formation has accelerated in sectors such as electronics and pharmaceuticals, employment effects remain limited because PLIs reward output rather than supply-chain development or labour absorption. Transforming PLIs into ecosystem instruments would require firms to meet three quantifiable conditions to receive full benefits: (1) demonstrable investment in local supplier upgrading; (2) establishment or funding of dedicated skilling centres within industrial clusters; and (3) compliance with minimum employment thresholds in key operational categories. This redefinition of incentives would generate a deeper manufacturing base, elevate MSMEs into structured supply chains, and create measurable employment multipliers. Moreover, it provides a template that smaller South Asian economies can emulate, allowing Bangladesh, Nepal, and Sri Lanka to integrate more efficiently into a regional manufacturing network underpinned by Indian scale and Indian standards.
The third direction requires a conscious recalibration of India’s services strategy. While India’s digital and IT-enabled services (ITES) sectors have demonstrated impressive export resilience—particularly in a global environment where goods trade has flattened—their geographical distribution remains narrow and their labour-market inclusivity incomplete. Expanding into a network of 100 Services Cities, selected for their tertiary-education density, logistical viability, and youth-demographic overlap, would disperse India’s high-value services engine beyond the Bengaluru–Hyderabad–Pune axis. Public investment in cold-shell office infrastructure, targeted tax incentives for global capability centres, funding for professional training institutes, and expedited regulatory clearances would allow tier-two and tier-three cities to absorb a larger share of India’s skilled workforce. This decentralisation has the additional advantage of structuring South Asia’s services integration around a stronger Indian core. Bangladesh’s fintech innovations, Nepal’s IT outsourcing ventures, and Sri Lanka’s healthcare and maritime services industries can all anchor their growth around India’s expanded services footprint, giving the region a stabilising spine that did not exist two decades ago.
These domestic strategies must be complemented by a more formally articulated regional framework. Cross-border digital platforms—especially payments interoperability and digital-identity linkages—offer immediate reductions in transaction costs and can be aligned with India Stack architecture. Climate-risk pooling mechanisms, supported by Indian fiscal guarantees, would provide smaller economies with buffers they cannot construct independently. Regional manufacturing corridors connecting eastern India to Bangladesh and Nepal can be developed through joint investments in logistics, customs modernisation, and standards harmonisation. Taken together, these initiatives would not only strengthen South Asia’s macroeconomic resilience but also institutionalise India’s leadership role in the region’s economic architecture.
Budget 2026 should therefore be understood not as an exercise in spending allocation but as an inflection point in narrative construction. The narrative India must advance: aimed at investors, neighbouring governments, multilateral institutions, and its own citizens, is one that integrates demographic scale, technological capability, and fiscal prudence into a coherent labour-market transformation. It is a narrative that positions India not merely as the region’s largest economy, but as its most reliable orchestrator of stability, its principal source of institutional continuity, and its anchor of long-term confidence.
Political actors and civil servants must recognise that the window for such a transformation is narrower than the headline numbers suggest. Demographic momentum will peak within the decade. Automation is accelerating faster than traditional labour-absorbing sectors can adapt. Climate shocks are increasing in frequency, placing additional strain on vulnerable South Asian economies. In such an environment, fiscal hesitancy would be indistinguishable from strategic drift.
The region is looking to India for stability. India must look inward to ensure its labour-market architecture can support that expectation. A budget aligned with this reality will do more than improve domestic welfare; it will set the foundation for South Asia’s next phase of economic consolidation. The responsibility is considerable, but so is the opportunity. India needs only decide whether it wishes its rise to be a solitary endeavour or the organising narrative of an entire region.
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About the author
Dharminder Singh Kaleka is an international lawyer and policy strategist whose work centres on economic governance and regional dynamics in South Asia. He co-founded MovDek Politico India and advises public and private institutions on narrative design and institutional strategy.
