Rising up to the challenge, the Finance Minister, in her Budget speech, made all the right noises — covering macro issues of growth acceleration, inclusive development, private investment and enhancement of middle-class purchasing power. Agriculture, rural prosperity, MSMEs, investment and exports also received their customary mentions.

More importantly, she managed to expand the size of the budget to an all-time high from Rs 48.21 lakh crore in 2024-25 to Rs 50.65 lakh crore in 2025-26 on the back of rising revenues and actually managed to cut the fiscal deficit to 4.4 per cent. 

A detailed analysis on the Budget proposals about MSMEs and startups can be read here and here.

Further detailed analysis on the tax cut and its effect on middle-class consumption can be accessed here.

Expenditure Growth Lags Output Growth

The total Budget size or expenditure increased by 5.1 per cent year-on-year in the Budget estimates.

To put this in broader context, the GDP growth rate slowed down to 6.4 per cent in the first advance estimates of 2024-25, from 8.2 per cent in the previous financial year. Government Budget expenditure expanding by more than a full percentage point below the slowed down GDP rate, is an economic statistic worth pondering upon.

Fiscal Consolidation Trend Continues

There can always be an argument made for slightly increasing the total Budget size, amid today’s fragmented economic uncertainty. However, this macro decision can be defended by the government in the name of fiscal consolidation.

Global credit ratings of the Indian economy come into play when companies doing business in India try to access credit, particularly from the international capital market. Hence, to maintain a workable rating, the fiscal deficit must be kept in check.

This overriding fiscal consolidation is on display as the 2025-26 Budget fixed the fiscal deficit target at 4.4 per cent of the GDP, down from the 4.9 per cent in 2024-25 (BE). The revised estimate (RE) of fiscal deficit has also marginally fallen, to 4.8 per cent in 2024-25.

This has been possible due to a 2.1 per cent fall in the interest payments in RE, compared to the original 2024-25 BE. In other words, fiscal consolidation trumped everything else in deciding the size of the Budget.

Rewarding Top-Bracket Income Taxpayers

Under the revised estimates, the good news for the government came in the form of gross tax revenue.

The 2024-25 RE gross tax revenue exceeded the Budget estimate by over Rs 13,000 crore. And this happened in spite of a 3.9 per cent fall in budgeted corporate tax estimate, compared to the revised estimate in 2024-25. The shortfall in corporate tax collection in revised estimates is Rs 40,000 crore.

For the Finance Ministry, the Budget day was saved by the personal income tax collection figures, which exceeded last year's Budget estimate by Rs 70,000 crore. Compared to last year’s Budget estimates, the collection under the revised estimates is 5.9 per cent.

Therefore, the top-bracket income taxpayers possibly saved the day, while corporate taxpayers faltered. No wonder the government decided to reward these taxpayers by reworking income tax slabs and increasing the amount of rebates.

Perhaps, what was playing in the minds of the Finance Ministry mandarins was the basic logic of the Laffer Curve, which is based on the idea that reducing tax beyond a maximum threshold point increases the tax revenue collection.

Last year’s Budget put its trust on private sector to generate employment. This year, it is the top-bracket income taxpayers’ turn to revive consumption demand in the economy.

Compulsion Of Coalition Politics

Parliament broke into laughter every time the FM mentioned Bihar. With state elections due in Bihar later this year, the Budget speech bore unmissable marks of the state where the ruling party has an important ally.

A Makhana Board will be established in the state to improve production, processing, value addition and marketing of makhana. The people engaged in these activities will be organised into FPOs (farmer producer organisations).

A National Institute of Food Technology, Entrepreneurship and Management will also be established in Bihar.

However, the most important announcement for the state came in aviation infrastructure. The Budget proposed multiple greenfield airports in Bihar to meet future needs, in addition to capacity expansion of the Patna airport, and a brownfield airport at Bihta.

The Budget also promised financial support for the Western Koshi Canal ERM Project that will benefit a large number of farmers in the Mithila region.

The compulsion of coalition politics explains unveiling of these projects. But when the central government's coffers have limitations, and other states also have their legitimate and not-so-legitimate demands for development projects, such largesse will keep on raising eyebrows in different quarters.

Whither Economic Growth?

The broader trend of keeping fiscal deficit in reins is bound to affect some heads of expenditure. Usually, social sector allocations bear the brunt. Unutilised amounts in education, food subsidies, rural development and health, bear testimony to that.

The ambition to be the fourth-largest economy by ensuring sustainable inclusive growth must be bolstered by a healthy and skilled population. Trends in Budget allocations, and more importantly, utilisation of budgeted amounts, have repeatedly fallen short of that.

Hopefully, the trend will reverse in the next fiscal.