No Cuts Expected in Capex or Social Sector Spending for FY26, Say Economists; India Has Strong Fiscal Buffers

 India is unlikely to scale back its capital expenditure or social sector allocations in the financial year 2025–26, even if geopolitical tensions escalate, according to leading economists. They emphasize that the government has ample fiscal buffers — including contingency funds and emergency reserves — to cover any unexpected defence-related costs without disrupting existing budget plans.

In an interview with Moneycontrol, Sri Hari Nayudu, economist at the National Institute of Public Finance and Policy (NIPFP), noted, “The immediate impact would be minimal. If necessary, RBI reserves can be tapped, and emergency or contingency funds are available. There’s no need to divert money from the social sector or other areas to cover war-related expenses.”

Nayudu pointed out that the government has several mechanisms at its disposal to meet potential defence needs. “Beyond the budget allocation for defence, we can access the contingency fund. Other financing options are also available. There’s no need to squeeze capital expenditure,” he said.

India’s Contingency Fund, established under Article 267 of the Constitution, enables the government to meet unforeseen expenses pending parliamentary approval. Additionally, the Reserve Bank of India’s emergency reserves provide another layer of protection against external financial shocks.

Highlighting India’s current military preparedness, Nayudu added, “We already have a substantial defence budget and adequate inventories. There’s no shortage of funds to handle defence requirements in our case.