Akhil Vaani | Budget 2026: Directionally Right, But The Hard Work Lies Ahead

In Part I of the special edition of Akhil Vaani on the Union Budget, I discussed ten key macro messages, while Part II focused on the core infrastructure sectors that account for the bulk of the Union Government’s mega Rs 12.2 lakh crore capex push.

The concluding Part III analyses the thrust in the remaining focus areas, along with a critical assessment of gaps and any missteps.

I begin with two critical areas — the urban and rural focus of the Budget.

Urban Sector – Right Intent, Low Allocation

Firstly, the context: The Economic Survey 2025–26 emphasised transforming India’s urban areas into economically vibrant, equitable and sustainable hubs through integrated planning and infrastructure. It also underscored the critical need for a systems approach

in future urban policy to integrate housing, mobility, sanitation, climate resilience and municipal finance, delivering performance outcomes rather than mere infrastructure. In a nutshell, it visualised cities as economic assets driving national output, with better governance to fix land-market distortions.

This leads me to question how the Union Budget 2026–27 fares with regard to the critical needs of the urban sector, particularly in view of the most recent July 2025 World Bank report, Towards Resilient and Prosperous Cities in India, which notes that India’s urban population is expected to surge, with approximately 600 million people living in cities by 2036. By 2050, this number is projected to nearly double from 2020 levels, reaching 951 million.

Secondly, key focus areas: Ostensibly, the 2026–27 Union Budget addresses urban-sector challenges through targeted investments in economic agglomeration and infrastructure.

Budget priorities emphasise City Economic Regions (CERs) in Tier II and Tier III cities and temple towns, with Rs 5,000 crore per region over five years for reform-linked plans to boost growth clusters. High-speed rail corridors and inland waterways aim to enhance inter-city connectivity, while metro projects continue to dominate urban mobility funding.

Support for housing under PMAY-Urban and sanitation under the Swachh Bharat Mission continues, but cuts signal a shift towards performance-based urban finance amid climate and migration pressures.

Thirdly, sub-par budgetary allocations: The total allocation of the Union Budget for urban development in 2026–27, instead of an urgently required substantial increase, marks a significant 11.6 per cent reduction from the revised estimate for the 2025–26 fiscal year. The following are the key details of urban sector allocations:

• 2026–27 Budget Estimate (BE): Rs 85,522 crore
• 2025–26 Revised Estimate (RE): Rs 96,777 crore
• 2024–25 Actuals/Revised: Rs 57,203 crore

In addition, the 2026–27 Budget introduces a “Rs 1 lakh crore” Urban Challenge Fund for sustainable, climate-resilient infrastructure.

By 2050, India’s urban population will be 951 million, according to the World Bank. This will require the creation of many greenfield smart cities, as well as substantially upgrading existing cities. Also, nearly three-fourths of the infrastructure required to meet this challenge is yet to be built. That is a gigantic task.

Clearly, the budgetary allocation falls abysmally short of the urban challenges posed by rapid urbanisation, infrastructure gaps and climate risks, as cuts hit basic services. The traditional paradigm of treating cities as residual priorities, despite their disproportionately high GDP contributions, continues to perpetuate itself as a self-fulfilling prophecy.

Fourthly, the litany of woes just got compounded: As clearly brought out by the Economic Survey, utilising the European Commission’s Global Human Settlements Layer (GHSL) satellite data, India’s real urbanisation footprint has become significantly higher than official Census figures suggest. Here are the findings:

• Real urbanisation rate: As of 2015, analysis of EU satellite data shows India was approximately 63 per cent urban.
• Comparison to official data: This 63 per cent rate is nearly double the 31 per cent urbanisation rate recorded in the 2011 Census.
• Data source: The findings are derived from the Degree of Urbanisation (DEGURBA) methodology, utilising high-resolution imagery from the European Commission’s Joint Research Centre (JRC).
• Functional urbanisation: The Survey emphasises that India is “deeply urban in economic terms”, with cities driving the majority of output, jobs and infrastructure, even if official definitions lag behind.
• Periphery growth: Satellite analysis reveals that peripheral areas of major cities grew faster than urban cores between 2000 and 2020, with periphery-to-core ratios in some regions reaching as high as 5.9.

The Survey highlighted that this “de facto” urban nation requires a major shift in policy to focus on functional urban areas rather than just statutory town boundaries. Conversely, the Union Budget misses the big picture altogether and continues to perpetuate the traditional anti-urban paradigm, treating cities and towns as residual areas of interest with abysmally low allocations compared to the resource-guzzling, low-performing rural areas.

Fifthly, crippling urban mobility gridlock: Even a cursory look at the Seventh Schedule of the Constitution of India makes it clear that urban transport — urban mobility is a constitutional orphan whose responsibility rests with none: the central, state or city governments.

Unsurprisingly, then, despite urban India contributing more than two-thirds of GDP — which is likely to increase to 70 per cent by 2030 and above 80 per cent by 2047 — it faces crippling urban mobility gridlock.

People-centric urban mobility prioritises pedestrians, cyclists and public transport users over private vehicles to reduce congestion, enhance safety and promote equity in Indian cities. The Economic Survey 2025–26 rightly critiques vehicle-centric policies and advocates a shift to integrated systems aligned with density, such as public transit and walkability.

Must Follow Core Principles

Bharat urgently needs to focus on the mobility needs of the “silent majority”, with 60 per cent of trips are made on foot, by bus, or by cycle, with safe footpaths, cycle tracks and bus-priority lanes taking precedence over flyovers or additional parking. Integrated land-use planning aligned with mobility — to create compact, mixed-use neighbourhoods that minimise travel distances, support non-motorised transport, and do not encourage gentrification that pushes the poor to the periphery — is the urgent need of the time.

Implementation Steps

The above urgently requires the following:

• Infrastructure redesign: Allocate street space hierarchically — pedestrians first, then cyclists, buses and finally cars — with dedicated lanes, safer crossings and intuitive signage, drawing from models such as Amsterdam.
• Technology integration: Deploy AI-driven traffic signals, real-time data applications and violation detection in pilot projects, as seen in Bengaluru and Pune, while linking these to Mobility-as-a-Service (MaaS) platforms.
• Policy and governance: The National Urban Transport Policy (NUTP) 2006 remains largely a policy on paper. It is time to enforce it through unified metropolitan planning, innovative funding for public transport, and Transit-Oriented Development (ToD) models such as those in Hong Kong, Tokyo and Singapore.
• Seamless integration: Accelerate the development of rail-based and road-based mass transit with seamless first- and last-mile connectivity.

The Union Budget 2026–27 completely sidesteps the critical needs of urban mobility. Even the allocation for high-profile metro rail development for 2026–27, at Rs 28,740 crore, represents a 17 per cent reduction from the revised estimate of Rs 34,807 crore for 2025–26.

The Government of India has set a target of 5,000 km of operational metro rail in 100 cities by 2047. I posit that the current annual central allocation of roughly Rs 30,000 crore is insufficient to reach this target by 2047 (21 years from 2026), as India would need to construct approximately 240 km per year- China already constructs more than 2000 km of metro rail per year.

With an average cost of Rs 300–350 crore per km (elevated), the total capital expenditure required is approximately Rs 15–17.5 lakh crore, which, with a 6 per cent annual escalation, rises to Rs 25–30 lakh crore in total, or an average of Rs 1.2–1.4 lakh crore per year — far exceeding the current combined funding of the Centre and the states.

I further posit that by 2047, urban India will require no less than 10,000 km of metro rail, supported by an adequate fleet of electric or hydrogen buses, integrated first- and last-mile connectivity, and robust non-motorised transport (NMT) infrastructure.

Time is running out fast, and the Budget does not provide a credible pathway.

Two, Rural India Matters Too

The Union Budget 2026–27 prioritises rural sector revival through enhanced employment schemes, housing, roads and agricultural technology to counter distress migration and boost rural demand. Key measures include increased allocations for asset-creating programmes while integrating skilling and credit to build resilience.

The key budgetary outlays are as follows:

• Rural development: The Ministry of Rural Development received a total allocation of Rs 2.31 lakh crore, compared to Rs 2.12 lakh crore in the revised estimates for 2025–26.
• Agriculture: The budget estimate for agriculture in 2026–27 stands at Rs 1.30 lakh crore, compared to the budget estimate of Rs 1.27 lakh crore for 2025–26, though higher than the revised estimate of Rs 1.23 lakh crore. Actual expenditure in 2024–25 was Rs 1.29 lakh crore.
• Fertilisers: The Fertiliser Ministry was allocated Rs 1.70 lakh crore for 2026–27, an increase of about 8.5 per cent from the previous budget.

Agriculture Focus Areas

Productivity boost: The Prime Minister’s Dhan-Dhaanya Krishi Yojana covers 100 low-productivity districts, focusing on irrigation, crop diversification, storage and credit support for 1.7 crore farmers.

Technology integration: The multilingual AI tool Bharat Vistar for advisory services; promotion of high-value crops such as coconut and nuts; and livestock modernisation through subsidies, value chains and Farmer Producer Organisations (FPOs).

Rural prosperity: A multi-sectoral programme targets under-employment through skilling, technology adoption and non-farm jobs for women, youth and small farmers.

Rural Infrastructure Focus

Employment and assets: The Viksit Bharat Guarantee for Rozgar and the Ajeevika Mission (VB-G RAM G), replacing MGNREGS, emphasises the creation of durable rural assets.

Housing and roads: Expansion of PMAY-Gramin (30 million houses over five years) and PMGSY Phase IV for rural habitations, with reform-linked funding.

Local governance: Rs 55,900 crore in Finance Commission grants to panchayats, nearly doubling previous flows.

Analysis

The combined budgetary outlay for rural development, agriculture and fertilisers, at Rs 5.31 lakh crore, may be justified. However, the key question is whether allocating only 16 per cent of this amount to urban development reflects seriousness in addressing the needs of the projected 951 million urban dwellers by 2050, who are expected to generate more than 80 per cent of the country’s GDP.

It also raises the question of when the paradigm of urban development as a residual subject will finally change.

My biggest concern remains the fertiliser subsidy, which at Rs 1.71 lakh crore in the 2026–27 Budget is more than double the total allocation for the urban sector, though it is lower than the revised estimate of Rs 1.86 lakh crore for 2025–26.

Particularly worrying is the continued dominance of the urea subsidy, which accounts for Rs 1,16,805 crore (68 per cent of the total), despite the overuse of urea causing large-scale damage through soil acidification, nutrient imbalances (N:P:K distortion), groundwater nitrate pollution, greenhouse gas emissions (N₂O being nearly 300 times more potent than CO₂), and long-term yield decline due to degraded soil microbial health.

The 2026–27 Budget was the right moment to bite the bullet and begin tapering the urea subsidy — as was done with the diesel subsidy — and redirect the savings towards sustainable urban development.

Three, Healthcare — A Priority It Never Gets

When it comes to healthcare, the Union Budget remains high on semantics and low on actual impact. The Union Budget 2026–27 outlines targeted health initiatives to bolster infrastructure, workforce capacity and specialised care amid rising non-communicable diseases and emergency needs. While these build on Economic Survey recommendations for integrated systems and address access gaps in Tier II and Tier III cities, they fall far short of actual requirements.

The allocation for the Ministry of Health and Family Welfare stands at Rs 1,06,530.42 crore, reflecting an increase of nearly 10 per cent over the revised estimates for FY 2025–26. However, this remains well below the WHO-recommended level of 5 per cent of GDP and falls short of the government’s own commitment to raise health spending to 2.5 per cent of GDP.

Another critical aspect that is often overlooked is that over the past five years, without exception, actual expenditure in the health sector has consistently fallen well below budgeted allocations.

But what are the key components of the health sector budget?

Infrastructure Expansion

PM-ABHIM receives Rs 4,770 crore (up 67 per cent) for cancer centres, super-speciality blocks, robotic surgery and AI-enabled facilities in districts. Trauma and emergency care centres will be launched in every district hospital to ensure 24×7 access, along with a 50 per cent capacity boost.

New AIIMS and PMSSY upgrades (Rs 11,307 crore) include trauma hubs. Five Regional Medical Value Tourism Hubs will be developed in partnership with states and the private sector to provide integrated care, education and rehabilitation.

Workforce and Care Ecosystem

The expansion of Allied Health Professionals (AHP) institutions will train multi-skilled caregivers (1.5 lakh over five years) in diagnostics, behavioural health and geriatrics. NIMHANS-2 in North India, along with upgrades to the Ranchi and Tezpur institutes, will strengthen mental health capacity.

Specialised Programmes

• Bio-Pharma Shakti: Funding for 1,000 clinical trial sites and biopharma R&D.
• Duty exemptions: Seventeen life-saving drugs for cancer and rare diseases are fully exempt from duty, while seven additional rare-disease medicines receive relief.
• AYUSH push: Three new All India Ayurveda Institutes and five regional AYUSH-led hubs with diagnostics and rehabilitation facilities.

Preventive and Primary Focus

The National Health Mission (NHM), with an allocation of Rs 39,390 crore, expands maternal and child nutrition programmes, vaccinations and Anganwadi digital upgrades. The National AIDS and STD Control Programme, with an outlay of Rs 3,477 crore, strengthens blood safety.

Mental Health — Budget Does Not Walk the Talk

Make no mistake: at any given time, more than 15 per cent of Bharatiyas suffer from one or another mental illness. India has world-best-practice frameworks in the National Mental Health Policy (2014) and the Mental Healthcare Act, 2017. Both are rights-driven instruments, but when it comes to real change on the ground, the situation continues to worsen for millions of sufferers.

On paper, the Union Budget 2026–27 signals a policy shift towards institutional strengthening for mental health, addressing regional access gaps and rising demand linked to non-communicable diseases.

Key announcements include:

• New NIMHANS campus: A North India hub for specialised care, training and research to reduce patient travel burdens.
• Upgrades: Ranchi (CIP) and Tezpur (LGBRIMH) elevated to national centres with enhanced capacity, with a 50 per cent boost targeted.
• Link to emergencies: Integration with 24×7 district trauma centres, recognising the psychosocial impact of accidents and shocks.

Mental Health Outlay Stinks

However, when it comes to budgetary allocation for mental health, the outlay remains so paltry that I hesitate to even mention the actual figure. I firmly believe there is no health without mental health, and today, mental illness affects almost every family in the country. Despite this, the annual allocation for mental health — amounting to only a few hundred crore rupees — is less than one-fifth of the Rs 3,477 crore allocated to the National AIDS and STD Control Programme in Budget 2026–27.

Only about 0.2 per cent of Indians live with HIV/AIDS, whereas more than 15 per cent of the population at any given time suffers from mental illness, which has increasingly become a reality in almost every household amid rapidly deteriorating social and living conditions.

I continue to wonder when the Government of India will wake up and walk the talk on mental health. Health may be a State subject under the Constitution of India, but mental health falls under the Concurrent List. Few readers will know that, at a time when Mental Health requires a separate Ministry, given the gravity of the situation, it is dealt with at the level of a Section Officer in the Ministry.

Four, Education and Skilling

The Economic Survey 2025–26 emphasises education as a core pillar of human capital development, highlighting the following key issues.

Focus Areas

The Survey highlights Early Childhood Care and Education (ECCE), Foundational Literacy and Numeracy (FLN), dropout reduction, universal access, curriculum revamping, teacher capacity-building, equity promotion and school quality improvement. In higher education, it stresses institutional restructuring, multidisciplinary learning, vocational pathways and internationalisation.

Digital tools such as PM e-Vidya and DIKSHA, along with initiatives like NIPUN Bharat and Samagra Shiksha Abhiyan, drive access and infrastructure enhancement.

Dropout Levels

Dropout rates remain a concern beyond elementary education, with significant declines in retention at the secondary level despite high primary enrolment. Girls face a higher risk of dropping out due to caregiving responsibilities and economic pressures. Rural areas exhibit higher dropout rates linked to long travel distances to secondary schools.

Regional Variations

Rural regions face critical gaps: only 17.1 per cent of schools offer secondary education, compared to 54 per cent in urban areas. This uneven distribution exacerbates dropout rates in underserved rural districts, particularly affecting adolescents who must travel long distances or work.

Skilling Gap Severity

The skilling gap remains significant, obstructing India’s demographic dividend. Weak secondary education leads to low higher education enrolment and limited labour force participation. Only a small proportion of youth acquire employability-ready skills. Surveys highlight low employability among graduates due to misaligned learning outcomes. While exact figures vary, the 2025–26 Survey emphasises NEP–skilling integration to address COVID-19-related setbacks and perceptual barriers to vocational training.

Given this context, if India is to become Viksit Bharat by 2047, the Union Budget 2026–27 must provide a clear template to address both the quantitative and qualitative challenges in education and substantially raise ambition on skilling.

How Does the Budget Fare?

Budgetary Allocation

The Union Budget 2026–27 allocates Rs 1,39,285.95 crore to the Ministry of Education, covering both school and higher education. This represents a marginal increase of 8.27 per cent over the 2025–26 allocation of Rs 1,28,650 crore.

School Education and Literacy receives Rs 83,561.41 crore, up 6.35 per cent from Rs 78,572 crore in 2025–26. Higher education receives Rs 55,724.54 crore, an increase of 11.28 per cent from Rs 50,078 crore.

Overall education spending remains at approximately 2.9–3.1 per cent of GDP, well below the 6 per cent target outlined in the National Education Policy. It is also noteworthy that in 2022, China’s education expenditure accounted for roughly 10.5 per cent of total government expenditure.

Key Focus Areas

The Union Budget 2026–27 emphasises aligning education with employment, innovation and infrastructure to support Viksit Bharat goals. Key priorities include skilling, digital integration, access equity and research enhancement.

The main focus areas include:

Employment linkages: A high-powered “Education to Employment and Enterprise” Standing Committee to bridge education with services-sector jobs, assess AI impacts and support export ambitions targeting a 10 per cent global share by 2047.

Infrastructure boost: Five university townships near industrial and logistics hubs; one girls’ hostel per district to improve STEM access; a new design institute in the Northeast; and content labs in 15,000 secondary schools through the Indian Institute of Creative Technologies.

Research and science: Investments in major telescopes, including the National Large Solar Telescope, Optical Infrared Telescope and Himalayan Chandra Telescope, as well as the COSMOS-2 Planetarium.

Sectoral hubs: Five regional medical hubs integrating education and research, and a National Institute of Hospitality and Tourism Skilling through an upgraded hotel management council.

Skilling Initiatives

Key initiatives target AI-driven employability through Centres of Excellence for skilling, AI-led curriculum reforms, biopharma and healthcare training, and stronger industry–academia linkages. These build on NEP 2020 through vocational pathways, flexible credit systems such as the Academic Bank of Credit (now operational in over 2,660 institutions), and biannual admissions in 153 universities to achieve a 50 per cent Gross Enrolment Ratio by 2035.

As with health, however, the Union Budget remains high on intent but falls short on budgetary outlay and a clear pathway to implementation — a key concern.

The Missing Areas

One year’s Budget cannot make India Viksit Bharat, but it can set the direction. While the approach is broadly directionally correct, there are areas that require prioritisation, others that demand transformational reform, and a few missteps that could have been avoided. Overall, I would rate the Budget 8 out of 10 — primarily because Sitharaman stays the course, but her challenges are enormous, and the next phase of reforms cannot wait for another Budget cycle.

The author is a multidisciplinary thought leader with Action Bias, India-based international impact consultant, and keen watcher of changing national and international scenarios. He works as president, advisory services of consulting company BARSYL. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect News18’s views.