Budget 2025-26: Don’t let electoral politics extract too high a price

Apart from all the usual reasons, this budget has special relevance, as it is the first full-year fiscal plan after last summer’s Lok Sabha elections. 

It comes after the interim budget on 1 February 2024 and the one presented in July for the remaining eight months of 2024-25. The forthcoming budget, thus, is both an opportunity and a challenge for the Narendra Modi government. 

While it offers the administration a chance to showcase its achievements of the past eleven years and lay down priorities for the next four, the demands made of it have grown. 

Also Read: Budgeting for growth

Unlike the previous two Lok Sabha terms when the ruling Bharatiya Janata Party had a majority on its own, Modi 3.0 is dependent on two coalition allies: Telugu Desam Party of Andhra Pradesh and Janata Dal (United) of Bihar. 

Given the pressures of realpolitik, this budget will almost certainly reflect this duo’s interests. 

We saw glimpses of it in July, with these two states singled out for special budgetary support. We can expect more along these lines this time as well.

The budget is expected to retain its “focus on four major castes, ‘Garib’ (Poor), ‘Mahilayen’ (Women), ‘Yuva’ (Youth) and ‘Annadata’ (Farmer)’ with particular emphasis on employment, skilling, MSMEs, and the middle class.” 

The interim budget’s broad thrust in nine areas of priority, such as productivity and resilience in agriculture, employment and skilling, manufacturing and services, and infrastructure, especially, is also unlikely to shift. 

Also Read: India’s budget needs to address three medium-to-long term priorities

With varying emphasis, all this is part and parcel of every budget. 

Apart from growth fuellers, the most important aspect of a budget for its macro economic impact is the size of its fiscal deficit, or the excess of total expenditure over its revenue intake (including non-debt capital receipts). 

In the budget for 2024-25, it was estimated at ₹16.13 trillion or 4.9% of GDP. Going by Controller General of Accounts data, the finance minister is likely to better these numbers, despite lower nominal GDP, thanks to less capital spending. 

For the eight months ended November 2024, the fiscal gap was only 52% of the budgeted figure.

The question is whether the Centre will abide by its stated resolve on the fiscal consolidation path it had announced, by keeping the deficit below 4.5% of GDP in 2025-26. 

Beyond that, as Sitharaman said in her budget speech last year, the “endeavour will be to keep the fiscal deficit each year such that the Central government debt will be on a declining path as a percentage of GDP.” 

This is not going to be easy. 

Private investment is yet to take the ‘baton’ the Centre wishes to pass on, so government investment will have to remain the key growth driver. 

And in a world where the external environment under US President Donald Trump could turn adverse. 

Also Read: Adapt to a Trumpian world order in a way that makes India great

Add the blow to fiscal tightening that pay hikes for central employees is likely to deliver, with all its spin-offs for those on state government and public-sector payrolls, and tight budgeting will get harder still. 

India’s fiscal law of 2003 called for a deficit of 3%. 

This framework may need an overhaul, granted, but that does not diminish the macro risks of an enlarged gap; especially if private demand perks up at some point. 

In any case, we must not mortgage the future to live irresponsibly in the present. Be careful with the fisc.