Context
The discussion took place against a backdrop of heightened global uncertainty—geopolitical tensions, fragmented trade architecture, and slowing global growth. India’s fiscal strategy was examined in light of its long-term vision of Viksit Bharat 2047, with emphasis on balancing growth ambitions and fiscal prudence.
Key Fiscal Highlights
- Fiscal Consolidation
- Fiscal deficit target set at 4.3% of GDP for 2026–27, continuing consolidation from ~9% during the COVID period.
- However, revenue deficit remains at ~1.5% of GDP, implying continued borrowing for consumption—an issue largely missing from public discourse.
- Debt Dynamics
- Central government debt projected at ~55% of GDP (combined Centre + States ~82%), well above the FRBM norm of 40%.
- High government borrowing continues to crowd out private investment and keeps the cost of capital elevated.
- Finance Minister’s commitment to reduce debt-to-GDP to 50% by 2031 welcomed, but still viewed as insufficiently ambitious.
- Disinvestment and Non-Tax Revenue
- Disinvestment target reset to ₹80,000 crore, marking a notable shift after years of underperformance.
- Positive signals on asset monetisation, though not explicitly detailed in the Budget speech.
- Emphasis placed on the need for outright privatisation in sectors where the government has no strategic role.
Revenue and Taxation
- Nominal GDP growth assumed at ~10%, with tax buoyancy estimated at 0.8, indicating slower tax growth relative to GDP.
- While personal income tax filers have increased to ~9 crore, 66% report zero tax liability, highlighting the narrow tax base.
- The need to widen the tax net and revisit exemption thresholds was emphasised.
Expenditure Composition and Concerns
- Capital Expenditure
- Public capex increased by 9.7% to ₹12.2 lakh crore, maintaining momentum.
- However, evidence of capex crowding-in private investment remains weak.
- Debt Servicing
- Interest and principal payments account for ~26% of total expenditure and ~40% of receipts, constraining fiscal space.
- Subsidies vs Social Sectors
- Subsidies (~7.6% of expenditure) exceed combined spending on health and education.
- Food subsidies are rising, raising concerns about long-term fiscal sustainability.
- Environment expenditure remains critically low (~0.07%), inconsistent with India’s climate commitments and domestic ecological challenges.
Sectoral and Structural Issues
- Manufacturing & Industry
- Focus on 7 frontier sectors (semiconductors, electronics, rare earths, chemicals, etc.) and 200 legacy sectors welcomed.
- Concerns raised over declining budgetary support for certain PLI schemes despite demonstrated uptake (e.g., electronics).
- Agriculture
- Agriculture employs ~43% of the workforce but contributes only ~18% of GDP.
- Fertiliser subsidies continue to rise, while natural farming allocation (~₹750 crore) remains modest and under-executed.
- Strong case made for shifting to direct benefit transfer of fertiliser subsidies to farmers.
- Banking and Credit
- Bank credit to industry has fallen (from ~26% to ~21.6%), while personal loans now dominate.
- Severe regional concentration: a small number of districts account for a disproportionate share of deposits and credit.
- Need for banking reforms to improve credit access for MSMEs and Tier-2/Tier-3 cities.
Urbanisation, MSMEs and Employment
- Recognition of cities as growth drivers through city economic regions and infrastructure corridors.
- Challenge-mode implementation (PPP) endorsed, notably for one girls’ hostel per district, seen as critical for female labour force participation.
- MSME initiatives welcomed (₹10,000 crore equity fund, trade receivables platforms), but execution remains key.
Ease of Doing Business
- Decriminalisation and compliance simplification acknowledged.
- However, absence of time-bound, systemic regulatory reform flagged as a major gap.
- Proposal for an inter-state regulatory reform council, akin to the GST Council, to address compliance burdens at the state level.
FDI and External Sector
- Net FDI turned negative due to rising capital outflows, despite steady gross inflows.
- Concerns raised about regulatory opacity, state-level barriers, and delayed bilateral investment treaties.
- Emphasis on financing the current account deficit through equity rather than debt flows.
Implementation Gap: A Recurring Theme
- Several schemes showed significant underspending relative to budget estimates, followed by sharp increases in subsequent allocations (e.g., Jal Jeevan Mission, PMAY-Urban, PM Internship Scheme).
- This pattern raises questions about:
- Administrative capacity
- Realistic budgeting
- Accountability for non-implementation
- The need to revive NITI Aayog’s Development Monitoring and Evaluation Office was emphasised.
Overall Assessment
- The Budget continues the path of fiscal consolidation and infrastructure-led growth.
- Positive signals on disinvestment, frontier technologies, and strategic autonomy.
- However, persistent gaps between budget announcements and actual implementation, rising subsidy dependence, low social and environmental spending, and weak private investment response remain key concerns.
- The discussion underscored that budget credibility depends not on announcements, but on execution and follow-through.
