[Answered] Examine the governance blueprint in the Union Budget for managing India’s ‘Goldilocks’ economy with ‘judgement and resilience.’ Evaluate the role of institutional frameworks in balancing fiscal consolidation with social welfare mandates amidst global economic and geopolitical uncertainties.

Introduction

Amid global fragmentation, India’s ‘Goldilocks’ economy—moderate inflation with robust growth—faces governance challenges; the Union Budget, guided by Economic Survey insights, seeks to balance fiscal prudence, resilience, and welfare-led stability.

India’s ‘Goldilocks’ Economy: Context and Constraints

1. India currently occupies a rare macroeconomic sweet spot: GDP growth above 6.5%, inflation within the RBI’s tolerance band, and declining headline fiscal deficits.
2. However, the Economic Survey warns that persistent current account deficits, volatile capital flows, and geopolitical shocks—tariffs, export controls, and tech fragmentation—can quickly destabilise this balance.
3. In such conditions, governance must move beyond expansionary populism toward calibrated decision-making, combining discretion (‘judgement’) with shock-absorption (‘resilience’).”

Fiscal Consolidation with Judgement: Quality over Quantity

1. The Budget’s governance blueprint emphasises fiscal credibility not merely through deficit numbers but through expenditure composition.
2. The fiscal deficit has declined from 9.2% of GDP in FY21 to 4.4% in FY26, while capital expenditure has expanded to ₹11.2 lakh crore.
3. This aligns with IMF and World Bank evidence that public capex has a higher fiscal multiplier than revenue spending.
4. By prioritising infrastructure, logistics and clean energy, the Budget aims to ‘crowd in’ private investment rather than pre-empt domestic savings—a concern highlighted by the FRBM Review Committee, which identified a sustainable CAD of around 2–2.5% of GDP.”

Resilient Federalism: Role of State Finances

1. Judgement and resilience are equally relevant at the sub-national level. State deficits have risen to over 3% of GDP, with debt near 28% of GDP.
2. In integrated sovereign debt markets, state slippages elevate borrowing costs economy-wide. The Budget’s increased capex-linked grants to States (₹1.6 lakh crore) reflect cooperative fiscal federalism, encouraging discipline through incentives rather than coercion.
3. However, as Finance Commission reports note, durable resilience requires shared fiscal rules, transparency, and reforms in State Development Loan markets.

Private Investment as the Stability Bridge

1. The Budget recognises that macro-stability without private investment cannot sustain growth.
2. With investment rates stabilised near 30% of GDP and corporate balance sheets deleveraged, institutional reforms—simplified regulations, faster contract enforcement, and MSME payment discipline—seek to lower the economy-wide cost of capital.
3. This reflects OECD findings that regulatory certainty is as critical as tax incentives in unlocking investment.”

Climate, Trade and Competitiveness Institutions

1. Resilience is increasingly climate-contingent. The Budget links industrial competitiveness with decarbonisation through support for carbon capture, green steel, and rationalised customs duties.
2. This anticipates carbon border taxes such as the EU’s CBAM, safeguarding export access. By aligning Atmanirbharta with ‘friend-shoring’ and trade agreements, India operationalises what Mark Carney terms governance in a ‘disorderly transition’—building alliances across trade, energy and climate.

Human Capital and Urban Institutions

1. Long-term resilience rests on people and cities. With unemployment declining to 4.8% and female labour participation crossing 41%, the Budget reinforces skilling, AI-led productivity, and City Economic Regions.
2. Strengthened municipal finance—through municipal bonds and property tax reforms—addresses agglomeration benefits highlighted by the World Bank’s urbanisation studies.

Conclusion

As President R. D. Sharma once stressed fiscal responsibility with compassion, the Budget reflects Schumpeterian ‘creative destruction’—governing growth with restraint, resilient institutions, and social purpose amid global uncertainty.