Budget Must Prepare India for Fractured World Despite Economic Survey Optimism
With global conflicts, trade fragmentation and technology rivalries deepening, India’s Budget must turn projected resilience into concrete investments in security, innovation and energy transition.
The Gist
The Economic Survey 2025-26 indicates a positive growth outlook for India despite global challenges.
- India's growth is projected to average 7% over the next decade.
- Global issues include geopolitical conflicts and competition for resources, necessitating a robust response from India.
- The government must prioritize defense spending and R&D to enhance strategic capacity and reduce reliance on foreign technology.
The Economic Survey 2025-26 tabled in Parliament on Wednesday presents a hopeful picture of India’s growth over the remainder of the decade, accelerating to an average of 7%, despite adverse and volatile global developments.
The global developments are summarised as: intensifying geopolitical conflicts, weaponisation of energy and finance, export controls on technology, scepticism about free trade, and competition for critical minerals (this should have been described more accurately as constrained availability of critical minerals to those who cross China).
How Must India Respond?
These global challenges cannot be considered a fleeting aberration. The Donald Trump administration in the US has fundamentally damaged the world order as it stood from the end of World War II to the beginning of 2021.
The security umbrella that the US has provided to its allies in East Asia and Western Europe has developed biggish holes, and could blow away altogether in a wave of populist assertion of American isolationism, a sentiment strong among Trump’s support base. This, along with Trump’s attack on American democracy, immigration and trade as the world knew it, has undermined the dollar and US government bond as the anchor of global finance.
India is no longer a reliable partner for the US, and the US is no longer a reliable partner for India. India has to cooperate, where possible, with the world’s second-most powerful economy and military power, China, while also gearing up to face any conflict with that country.
As such, these global trends call for a concerted and sizeable response from India. Will the Budget mark the beginning of such a response, or will it muddle along as usual?
Budget Rehaul
India’s armed forces and their arsenal have to be strengthened considerably. India has to step up defence spending and procure a rapidly rising share of sophisticated defence kit from the domestic industry.
To this end, the government has to take strong measures to harness India’s robust potential for research and development (R&D), increasingly tapped by foreign companies in their proliferating Global Capability Centres across India’s big cities, to create strategic capacity that is not at risk from foreign sanctions, technology denial or export controls.
If allocations to defence and R&D go up significantly, allocations to some sectors will have to be reduced, some of them sharply. That calls for political courage, of a kind that has been rare in India.
The wasteful and skewed subsidies on fertilisers, particularly urea, which poison the air, water and soil, form a prime candidate, alongside the incentivisation of production of grain India does not need. Food stocks are far in excess of buffer stocking norms, and over 5 million tonnes of rice were used to produce ethanol, rather than feed people, last year.
The Centre spends lots in areas that, under the Constitution’s division of responsibilities, belong to the states. One way to find resources for defence, which is indeed a prime responsibility of the Centre, is to scale back the populist trespass into the states’ domains.
Get The Private Sector To Spend
The Economic Survey laments the private sector’s reluctance to undertake R&D. Of the measly 0.64% of GDP that the Survey says India spends on R&D, the private sector contributes only 41%, that is, 0.26% of GDP. Ideally, the Budget should announce a tax incentive for income derived from intellectual property developed by a company. It could be supplemented with a levy that takes away the shortfall of any enterprise with a turnover of at least Rs 500 crore vis-à-vis a goal for R&D spend of 5% of turnover.
The proceeds of this levy can be handed over to a venture fund for funding startups in hard technology areas, with a biggish share of the fund’s returns from those startup investments going back to the companies that contributed to the corpus.
Electricity Over Gas
During the extensive conversations The Core has had with India’s hydrocarbon majors over the India Energy Week, bosses of the gas pipeline major GAIL and city gas company IGL asserted their plans to expand the pipeline network to bring more and more cities, and even smaller towns, under the coverage of piped natural gas distribution as cooking fuel for homes. Another major use of piped natural gas is to deliver compressed natural gas as fuel for vehicles. From a long-term perspective, massive investment in piped gas is a mistake.
India should be cooking on electricity, not liquefied petroleum gas or natural gas. Electricity should power mobility, as well, with greater emphasis on public transport than on private vehicles.
LPG is a mixture of odour-free butane and propane, spiked with Ethyl Mercaptan, to give the gas its distinctive smell, so that any leak is easily noticed. LPG might also contain trace elements of other gases.
When you burn LPG, the four carbon atoms in the butane molecule and the three carbon atoms in the propane molecule combine with oxygen to produce carbon dioxide (CO2). It is precisely such emissions that the world has to reduce and/or capture for use or storage, in order to combat climate change.
Piped Gas Over Cylinders
Natural gas is methane, which has one carbon atom. It is cleaner than LPG in terms of emissions. Further, LPG is distributed in cylinders that need to be distributed over road networks, using up energy on transporting both gas-filled cylinders from the bottling plants and the empties back to the bottling plants. Piped gas avoids such transportation costs and associated greenhouse gas emissions. What is not to like about piped gas as the preferred cooking fuel?
Methane is itself a greenhouse gas, and is 27-30 times more potent than CO2 when it comes to warming the globe, according to the US Environmental Protection Agency. Leaks from natural gas pipelines are a source of global warming. But, more to the point, burning gas does produce emissions, whether for cooking or to run a car. Electricity is a greener fuel compared to either.
But if the electricity is generated by burning coal, is it still better to cook and move using electricity? The question has to be answered from an emissions perspective and from that of energy efficiency. Power plants are places where emissions are concentrated, amenable to capture for use and storage, whereas in kitchens and on the road, the emissions mix into the air to add to the load of greenhouse gases.
Time For Coal Gasification
India should be burning gas derived from India’s massive coal reserves, rather than imported LNG. The gas-based power generation capacity in India that has been stranded — meaning, left unused and abandoned, on account of being uneconomical, in comparison to power produced from renewable sources, hydroelectricity or coal-burning plants — is some 20,000 MW.
From the viewpoint of energy efficiency, a gas stove is more efficient in converting the energy content of the gas into heat, compared to the conversion of coal into electricity, transmission and distribution of the electricity to homes and conversion of the electricity, via induction stoves, to heat.
However, if coal is gasified underground, and the gas is used in a combined cycle gas turbine to produce electricity, the energy efficiency of the induction stove can match or exceed the energy efficiency of the gas stove.
India should stop relying on imported LNG for its gas availability and step up coal gasification.
