India’s economy stands at a rare and consequential juncture, where macroeconomic stability, strong growth, and rising global confidence intersect. Recent sovereign credit rating upgrades are not merely symbolic; they reflect a hard-earned credibility rooted in fiscal discipline, predictable policy, and sustained public investment. Preserving this credibility now requires restraint rather than expansion. Deviating from the fiscal consolidation path at a moment of low inflation and robust growth would weaken the very signal that has restored investor confidence.
The next challenge is qualitative, not quantitative. India has largely completed the phase of foundational infrastructure build-out. The imperative now is to redirect public investment toward productivity-enhancing assets that directly support manufacturing, exports, and MSME scale-up. Industrial clusters, logistics ecosystems, and technology infrastructure matter more at this stage than additional linear assets.
At the same time, India’s declining export intensity signals unresolved competitiveness constraints. Addressing them demands deeper integration into global value chains, predictable incentives, and state-level reforms that improve contract enforcement and land certainty. If policy pivots decisively toward productivity creation, the coming decade can be defined by more tradable, employment-rich growth.
In an exclusive interaction with The Interview World, Shishir Priyadarshi, President of the Chintan Research Foundation (CRF), delivers a rigorous assessment of India’s fiscal and structural priorities. He examines the fiscal deficit glide path as a critical lever for sustaining sovereign credit rating upgrades. At the same time, he argues for a decisive pivot away from asset-heavy infrastructure spending toward investment that directly complements production. Further, he outlines targeted budgetary interventions to strengthen MSMEs, emphasizes the urgency of state-level reforms, and delineates the core priorities that should shape the forthcoming budget.
The following are the key insights from his incisive discussion.
Q: How critical is maintaining the current fiscal deficit glide path for sustaining India’s recent sovereign credit rating upgrades?
A: Preserving the fiscal deficit glide path is fundamental to sustaining India’s recent sovereign rating upgrades. As the CRF report makes clear, rating agencies have directly tied India’s improved outlook to credible fiscal consolidation, reinforced by growth-oriented capital expenditure. A material deviation from the 4.4 percent fiscal deficit target would therefore send an adverse signal of fiscal slippage, precisely when global investors remain highly alert to risks around debt sustainability.
Crucially, the report notes that India is currently in a “Goldilocks” phase, strong growth coupled with low inflation. This combination creates a narrow but powerful window to entrench fiscal credibility, not weaken it. In such conditions, large discretionary stimulus is neither warranted nor responsible; discipline, not expansion, is the policy imperative.
Q: Would you advocate for a sharper shift from asset-heavy infrastructure to production-complementary assets such as industrial clusters and logistics hubs?
A: Yes, this is not a case for reducing capital expenditure, but for reorienting it with precision. The CRF analysis demonstrates that while capital efficiency has strengthened across utilities and core infrastructure, it has weakened in manufacturing, as evidenced by the sector’s rising ICOR or Incremental Capital-Output Ratio. This divergence sends a clear signal: highways and power lines, by themselves, no longer suffice.
Accordingly, the next phase of public investment must pivot toward production-complementary assets. Industrial clusters, common facility centres, logistics parks, and technology hubs should take priority because they directly crowd in private manufacturing investment. By design, these assets close the gap between infrastructure availability and effective productive capacity, particularly for MSMEs, and, as a result, generate materially higher growth multipliers.
Q: India’s exports as a share of GDP have been declining despite resilience in absolute terms. What does this signal about India’s trade competitiveness?
A: The declining export-to-GDP ratio points to a structural competitiveness problem, not a cyclical fluctuation. Although India’s exports have remained resilient in nominal terms, the CRF report shows a clear relative erosion: exports fell from 13.5 percent of GDP in 2022–23 to roughly 11.2 percent in 2024–25. As a result, exports are failing to keep pace with domestic growth.
This divergence reflects enduring constraints: elevated logistics costs, limited market diversification, and the weak performance of labour-intensive manufacturing. Consequently, the policy response must shift decisively. India needs outcome-based export incentives and deeper integration into global value chains, rather than continued reliance on incremental refunds or legacy schemes that no longer move the needle.
Q: MSMEs sit at the intersection of manufacturing, exports, and employment. What are the top three budgetary interventions they need most urgently?
A: The CRF report sets out three urgent and interlinked priorities.
First, policy must ensure affordable and predictable finance. This requires expanding interest subvention and widening access to export credit, particularly for labour-intensive and export-oriented MSMEs. Second, the focus must shift to cluster-based development. By enabling shared access to logistics, testing facilities, skilling infrastructure, and technology, clusters sharply reduce unit costs and improve scale efficiency. Third, policy predictability is essential. Multi-year stability in duties, rebates, and export incentives matters because uncertainty, more than cost, often deters MSMEs from investing or scaling exports.
Taken together, these interventions directly address the MSME constraint triangle: credit, cost, and confidence.
Q: Which state-level reforms-land, power, urban governance, or contract enforcement – should be prioritised for performance-linked grants?
A: If prioritisation becomes unavoidable, contract enforcement and land digitisation should lead the reform agenda. The CRF document makes a compelling case for tying performance grants to reforms that directly enhance investment certainty. Digitised land records, faster dispute resolution, and enforceable contracts reduce transaction risk far more effectively than almost any tax incentive.
These reforms should be followed closely by power sector restructuring and improvements in urban governance, particularly in states seeking to position themselves as manufacturing or export hubs. Properly designed performance-linked grants can, in turn, foster genuine competitive federalism, rewarding not only outcomes, but also the speed and seriousness of reform implementation.
Q: How can the budget ensure sustainable financing for open digital systems without excessive fiscal burden?
A: The solution rests on institutional innovation, not perpetual budgetary support. Accordingly, the CRF recommends establishing a Public Digital Infrastructure Fund, a sovereign-anchored, multi-partner vehicle that brings in multilateral agencies and private capital. A modest initial government corpus can then catalyse long-term financing for maintenance, cybersecurity, and the global deployment of digital public goods.
This model achieves three objectives simultaneously. It preserves India’s leadership in open digital systems, avoids recurring fiscal strain, and creates a scalable export pathway for India’s DPI modules.
Q: Finally, if you had to identify one reform that could define India’s economic trajectory over the next decade, what should the Finance Minister prioritise this year?
A: The defining reform lies in reorienting public capital expenditure from asset creation to productivity creation. Roads and railways have built the foundation; the next decade will be shaped by investments that directly enhance manufacturing efficiency, strengthen export competitiveness, and enable MSMEs to scale.
If Budget 2026 institutionalises this shift, through production-linked capital expenditure, export-linked incentives, and performance-based rewards for state-level reforms, it can decisively reshape India’s growth model, making it more tradable, more employment-intensive, and far more globally competitive.
