By Bishwajit Bhattacharyya
The Union Budget 2025 represents Union Government’s estimated receipts and expenditure from 1.4.2025 to 31.3.2026! Article 112 of the Constitution mandates this.
Today at 12.16 PM the Union Finance Minister has proposed an estimated total receipts of INR.34.96 trillion which falls short of estimated total expenditure of INR.50.65 trillion, reflecting a fiscal deficit of INR.15.69 trillion, which is 4.4% percent of budgeted GDP of INR.357 trillion.
Budget estimates of fiscal deficit in last four years, from 2021, were 6.5%, 6.4%, 5.9% and 4.9% respectively; thus, the fiscal trajectory is on the correct path, though the pace is slow ! The fiscal deficit must be trimmed down to 3% of GDP by next year. This is achievable. For an annual budget with receipts and expenditure combined exceed INR.85 trillion, generating additional 5 to 6 trillion rupees requires commitment, not magic!
An overhauled revenue collecting machinery alone can yield the requisite surplus; the massive establishment expenditure of Union Government (INR.8.68 trillion) must also be slashed down drastically. These steps would bolster India’s fiscal health considerably.
Budgeted gross tax revenue is INR.42.70 trillion; out of this, direct tax is INR.25.20 trillion and indirect tax is INR.17.50 trillion. Out of direct tax of INR.25.20 trillion, individuals contribute INR.14.38 trillion and corporates INR.10.82 trillion. Out of indirect tax INR.17.50 trillion, GST is INR.11.78 trillion, Union Excise duty is INR.3.17 trillion and Customs duty is INR.2.40 trillion, plus additional misc 0.15 trillion rupees.
It would, thus, be noticed that income-tax to corporate-tax ratio is: 1.33 : 1. This means individuals are paying more direct taxes than corporates. This is most inequitable; individuals must not be coerced to subsidise direct tax to corporates!
It is commendable, however, that overall direct taxes (25.20 trillion rupees) are outgrowing indirect taxes (17.50 trillion rupees). Indirect taxes are inflationary. Indirect tax rates, therefore, ought to be reduced; this reduction of indirect tax revenue may be recouped by imposing additional direct tax on corporates. This is an imperative necessity.
From gross tax revenue collected by Union Government, a part of it is required to be distributed to the States; this is mandated by article 270 of the Constitution. The budgeted figures of INR.14.22 trillion of tax revenue to be transferred to the States is reasonable. Tax revenue distributed to States in last 4 years, from 2021, were INR.6.65, 8.16, 10.21 and 12.47 trillion respectively.
These figures reflect that, over-all, the Finance Commission has been preforming its task reasonably well under article 280 of the Constitution.
Non tax revenue budgeted at INR.5.84 trillion seems optimistic. These figures in last 4 years, from 2021, were INR.2.43, 2.69, 3.02 and 5.45 trillion respectively.
Coming to expenditure, total budgeted expenditure is INR.50.65 trillion. Considering that Union Government has been under severe fiscal strain, the burgeoning expenditure is disconcerting.
My biggest worry is liability of interest burden which has grown from INR.8.09 trillion in 2021 to INR.12.76 trillion in 2025 reflecting an increase of 58 %. Interest burden alone wipes out budgeted figure of corporate taxes. Even a remote possibility of an internal debt trap must be avoided. The situation is grim!
Governance has always been perceived by the common man as the ability to spend someone else’s (tax payer) money without accountability; and to keep on borrowing & spending when funds dry up. This perception is only intensifying. Indeed, and factually, this grim reality amounts to shifting the debt burden to the future generations.
Fiscal Responsibility and Budget Management (FRBM) Act, 2003 was enacted by the Parliament 22 years ago to institutionalise fiscal discipline, but it has been more honoured in the breach than observance! It is time to put a cap on borrowing. Financial discipline will follow as a corollary.
I’m hoping, our apex judiciary may, some day, take suo motu note of article 292 of the Constitution and put a cap on executive power of the Union to borrow; if the executive and legislature fail jointly and severally, what is the option ?
Next comes the huge bloated establishment expenditure of the central government, budgeted at INR.8.68 trillion. The slogan “minimum government maximum governance” appears to have been overturned. The union government’s establishment expenditure has swelled to an alarming level; it is now nearing twice (1.77 now) that of defence expenditure. In my humble view, serious effort should be made to curb establishment expenditure of the Union Government.
Defence expenditure can never be adequate considering our hostile neighbours and overall vitiated environment. So, I would think proposed expenditure of INR.4.92 trillion is just about adequate. Subsidies have been budgeted at INR.3.84 trillion; the components of subsidy are: food, fertiliser and petroleum amounting to INR.2.03 trillion, INR.1.68 trillion and INR.12,000 crores respectively. Petroleum subsidy must be enhanced.
Grants of Union Government of INR.4.27 trillion seems adequate. As regards Pension, budgeted INR.2.77 trillion is a hefty increase from INR.2.43 trillion last year. Pension cannot possibly be reduced, but some restraint must be exercised.
Overall expenses for Non Development expenditure is INR.34.17 trillion (12.76+8.68+4.92+3.83+4.27+ 2.77 =37.23); this leaves only INR.13.42 trillion for development expenditure, which is grossly inadequate for our country with a GDP of INR.357 trillion; hence the dire need to maintain strict fiscal discipline. We need to generate optimum revenue desperately.
As regards total debt of the union government: internal and external combined have been budgeted at INR.197 trillion. GDP has been budgeted at INR.357 trillion. So, the Debt/GDP ratio has been budgeted at 55%. This percentage is hardly comfortable.
India’s potential is enormous. But we are way behind USA or China in terms of annual budgeted expenditure; USA government spends annually around 6.9 trillion dollars which is 24% of USA’s GDP. China spends around 4 trillion dollars annually; even Japan spends about 750 billion dollars annually; as compared, India’s annual expenditure is only about 585 billion dollars! Even to spend these funds we have to borrow with a hefty price.
Our revenue collecting machinery has not lived upto the expectations of the nation! Tax payers are still prone to harassment; and tax evaders are still prone to inducement for colluding! This is an open secret, despite automation! Corruption deep down has to be cracked and revenue collecting machinery must be completely overhauled; otherwise India’s true potential would continue to elude her!
Here is a caution, beyond Budget. USA’s invisible dictat to bash the rupee continues for 8th decade now! Rupee is now hovering near 87 to a dollar. This is having a disastrous effect on our economy. As India’s dependence on imported crude oil shoots up to 88%, it’s time to ignore opinion of dollar holders about dollar/rupee exchange rate ! Crude oil imports top India’s merchandise import list. The poor rupee holder is becoming poorer still every succeeding day! Hitting the rupee, and thereby rupee holders, is no way to arrest inflation or to increase exports or to bolster foreign investments or to correct trade imbalance! The harder the rupee is hit vis-a-vis the dollar, worse India’s economy becomes on every parameter! No point blaming the only institution, the RBI, whose credibility remains undiminished. In fact, India’s monetary policy handled during past six years (2018 to 2024) has been exemplary during the worst phase of her economic crisis, during and post COVID. Problem lies in the fiscal front.
Overall, we have a long way to go. Fiscal situation must be tackled resolutely. This should be India’s top priority now.
Bishwajit Bhattacharyya is Ex-Additional Solicitor General of India & Senior Advocate.