A lacklustre central Budget-2026-27
Despitethe global economy being very fragile and diverging, the Economic Survey presents a rosy picture about the Indian economy. It has projected that the real GDP growth would stay at 7.4 per cent for the Financial Year 2025-26 and the medium-term growth potential has been put at an average of seven per cent.
Fiscal discipline has remained elusive ever since the Fiscal Responsibility and Budget Management Act was passed in 2003. The goals that were set remained unrealised with the three-year period of Covid-19 dubbed as the cog in the wheel.
The Economic Survey has set a goal of capping the combined fiscal deficit of the Centre and States at six per cent. But the Budget estimated it to be hovering around 4.3 per cent of GDP. What is not focused hitherto is the unfettered fiscal indiscipline of the States. The Survey has noted that the gross fiscal deficit of the States has increased from 2.6 in 2021-22 to 3.2 per cent in 2024-25, which is quite alarming. Similarly, liabilities of the States are also shooting up to almost one-third of the States’ GDP. The new trend among the States is that they are devising newer ways of borrowing through domestic and international lenders. Wisdom has prevailed very lately on the Central Government that the sovereign borrowing cost is on the rise; till then it thought it wise to ensure fiscal discipline among the States.
As a matter of fact, the N K Singh Committee constituted to review and recommend changes in the FRBM Act 2003 proposed a maximum limit of 40 per cent in case of the Centre and 20 per cent in case of States of their GDP. All these targets belied long ago. To quote an example of how States are let loose in imposing fiscal discipline, we must cite the example of Andhra Pradesh. The State has raised direct loans to the extent of Rs 5.62 lakh crore, taking the total loans to a staggering Rs 11.62 lakh crore, which is about 33 per cent of its GSDP.
Similarly, a major worrying factor comes in the form of rising loan to GDP ratio growing to almost 85 per cent; with the Centre sharing 57 per cent and states holding the remaining 28 per cent. The Centre hopes to bring it down to 55.6 per cent by 2026-27.
Informal sector is a reality in India with about 450 million, constituting about 90 per cent of the labour force and contributing about 50 per cent to the GDP of the economy. Another startling revelation is the growing presence of the gig economy, accounting for about two per cent of the country’s workforce. It is noted that gig workers are increasing at a phenomenal rate of about 55 per cent from 7.7 million to 12 million between 2020-21 and 2024-25. The plight of around 40 per cent of this category earn a pittance-below Rs 15,000 per cent; which is well below the minimum Rs 20, 358 wages fixed by the Central government for unskilled workers.
The government is claiming that the implementation of four Labour Codes is helping consolidate the 29 central laws to simplify the compliance and ensure safety and security for the labour. But the opposition has been raising a hue and cry stating that these codes weaken protection of workers and increase job insecurity and thus make ‘hire and fire’ easy for the employers. Surprisingly, the Budget is silent about these issues and there is no mention of creation of any fund or allocation to ensure their safety and security; excepting a few general measures proposed to ensure well-being and wellness of citizens.
It is laudable that human capital formation is accorded priority in the context of realising Sustainable Development Goals (SDGs). The present budget highlights this as the second kartavya to fulfil the aspirations of the people of the country and build their capacity, making them strong partners in India’s path to prosperity. The measures are distributed under health, MSME and agriculture. Instead, there should have been a consolidated allocation at a single place.
But the quality of human resources in India is not of any reckoning in terms of education, health and social security. The literacy rates are low with significant divergence between rural and urban, men and women plains and hilly areas are not certainly comparable with any advanced country. The country’s HDI ranking is not appreciable with India placed at 130th position out of 193 countries. There is a claim that there has been a significant reduction in poverty levels, and the poverty rates are estimated at 5.3 per cent during 2022-23 for extreme poverty. But India is put under ‘serious category’ with a score of 25.8 by the Global Hunger Index (GHI) and the country stands at No 102 position from among the 123 countries that were surveyed. The Report is also categorical about the challenges of malnutrition, stunting and wasting faced by our young kids.
In the long march towards Viksit Bharat, many fundamental infirmities are conveniently being ignored. One such issue is about the growing inequalities between the rich and the poor. Inequality is so vast that the top one per cent of Indians are controlling about 40 per cent of the wealth and receiving about 23 per cent of income. The ‘Billionaire Raj’ is deepening with the number of Indians joining the club year after year at 358 dollar-billionaires; occupying the third place, next only to the USA and China. Secondly, the basic principle of ‘socialistic pattern of society’ is glossed over in preference to private participation in almost every sector, including defence. Time alone shall decide whether the nation is making the right choice in a country devoid of equal opportunities in education, health and even in political power. The third is the domain of maintaining harmony between the Centre and the States, upholding the sanctity of federal structure.
The non-BJP ruled states are vehemently vocal about the unfair distribution of financial and other resources. In the context of the recommendations of the 16th Finance Commission due for finalisation, States are reeling under high hopes of fair share in the increased tax revenues. Against these, the budget proposed just 41 per cent transfer to states as against their demand of minimum 50 per cent. Unless this is balanced properly, the already strained relations would beat a new low and discontent turning perennial.
It is usual to expect in any budget that there will be a higher focus on increasing the investment through public and private sectors towards capital expenditure. During the last budget, the finance minister had proposed an amount of Rs 11.2 lakh crore in this regard but spent only Rs 6.2 lakh crore. This time, the FM is proposing an amount of Rs 12.2 lakh crore. But how much of it is going to be spent will be the point of concern. As a matter of fact, there is a near standstill in the capital spending by the private sector. A cautious ‘wait and see’ approach is being adopted by private players.
Finally, there is a great disappointment for the individual taxpayers, who were hoping to have some relief in the form of a hike in the ‘no tax’ limit. As already indicated, the new tax regime is aimed at rationalising the tax structure and procedures with the new Income Tax Act being made operational with effect from April 1. Similarly, the FM has proposed a simplified tariff structure on the indirect taxation front; providing a boost to the genuine exporters and importers. Overall, the present budget can be termed as ‘just another exercise in continuation’ without any exclusive treatment to any important segment, including agriculture, human capital, corporate investment and the much-awaited fiscal discipline.
(The writer is a former Vice-Chancellor of Acharya Nagarjuna University)
