India’s Budget 2025-26 Focuses on Growth Challenges

Source: The post India’s Budget 2025-26 Focuses on Growth Challenges has been created, based on the article “A Budget that is mostly good but with one wrong move” published in “The Hindu” on 6th February 2025.

UPSC Syllabus Topic: GS Paper3- Economy-Government Budgeting.

Context: The article discusses India’s Union Budget 2025-26. It highlights GDP growth projections, tax revenue trends, government spending, and fiscal policy changes. It praises capital expenditure growth but criticizes the shift from fiscal deficit targets to a less transparent debt-GDP ratio approach.

For detailed information on Union Budget 2025-2026 Highlights read this article here

What is the GDP Growth Projection for 2025-26?

1. The Union Budget 2025-26 projects a nominal GDP growth rate of 10.1%.
2. The Economic Survey 2024-25 estimates real GDP growth between 6.3% and 6.8% for 2025-26.
3. If growth improves, this provides a buffer for economic stability.
4. The government aims to accelerate growth to push India towards developed country status.
5. The Economic Survey suggests an 8% real growth rate is needed for this goal.

How Have Capital Expenditure and Revenues Changed?

A. Capital Expenditure Trends

1. Capital expenditure for 2025-26 is ₹11.2 lakh crore, slightly higher than the ₹11.1 lakh crore projected in Budget 2024-25.
2. The increase over the 2024-25 revised estimates is ₹1.03 lakh crore.
3. The share of capital expenditure in total expenditure has improved by 10 percentage points since 2020-21.
4. Higher capital spending helps economic growth through infrastructure investments.
5. Total government expenditure will grow by 7.6% in 2025-26 (BE). This is lower than the 10.1% nominal GDP growth.

B. Revenue Trends

1. Tax Revenue Trends:

1. Gross tax revenue (GTR) growth has declined:

• 2023-24: 13.5%
• 2024-25 (RE): 11.2%
• 2025-26 (BE): 10.8%

2. GST growth also fell from 12.7% in 2023-24 to 10.9% in 2025-26 (BE).
3. Direct taxes now contribute 59% of total tax revenue, up from 52% in 2021-22.
4. Personal income-tax growth fell due to tax concessions, declining from 25.4% in 2023-24 to 14.4% in 2025-26 (BE).
5. Corporate tax growth improved from 7.6% in 2024-25 (RE) to 10.4% in 2025-26 (BE).

b. Non-Tax Revenue Trends:

2. Non-tax revenue rose from ₹5.3 lakh crore (RE) to ₹5.8 lakh crore (BE).
3. The increase of ₹35,715 crore mainly came from higher dividends from RBI and public sector companies.

Why Is the Shift Away from Fiscal Deficit Targets a Concern?

1. Less Transparency: The 2025-26 Budget replaces fiscal deficit targets with debt-GDP ratio projections, making fiscal planning less clear.
2. Past Commitment Ignored: The 2024-25 Budget planned to reduce the fiscal deficit below 4.5% by 2025-26, but the new budget removes this glide path.
3. Vague Assumptions: The budget provides alternative debt-GDP ratio paths based on nominal GDP growth assumptions of 10.0%, 10.5%, and 11.0%, making fiscal discipline uncertain.
4. Risk to Private Investment: A larger government claim on available funds may reduce private sector investments, slowing economic growth.

Conclusion

The Budget 2025-26 balances growth and fiscal discipline. It focuses on capital spending and direct tax growth but reduces transparency in fiscal targets. The government should invest in AI and ensure clear fiscal policies to sustain long-term growth.

Question for practice:

Examine the impact of the shift from fiscal deficit targets to debt-GDP ratio projections on fiscal transparency and economic growth.