Finance Minister Nirmala Sitharaman's ninth budget on the trot was expected to do a lot of the heavy lifting what with the world roiled by troubles headlined with a capital T. So, how did it fare?
An early look at the budget betrays signs of the government walking away from its responsibility to shepherd the economy to calmer waters.
Let me sum up my reading of the budget numbers in eight points and sadly they don't give much joy:
1. It is minimum government in a literal sense that the Budget underscores. The Union Government Revenue is down to 9% of GDP for FY 27, down from 9.4%.
2. Budgeted Tax Revenue is 7.3% of GDP, compared to 7.5% of GDP. The main reason is the decline in the growth rate of GST collection.
3. Non-Tax Revenue is budgeted to go down from 1.9% to 1.7%.
4. Consequently, the aggregate expenditure is budgeted to come down from 13.9% of GDP to 13.6% of GDP, compared with the revised estimates.
5. Capital Expenditure allocation at 3.11% is up from 3.07%.
6. Nominal Growth in GDP is assumed to be 10%, same as last year, though the current year nominal GDP is estimated to be higher than last year's budget estimate.
7. â Share of states in tax revenue as a percentage of GDP too is budgeted to decline marginally.
8. To sum up, we have a shrinking role of the State in the Indian economy. I would have expected it to go up, given the geo-political and global trade related uncertainty. But the government, in some sense, is absolving itself of responsibility, i.e., its kartavya.
These reflections stem from an attempt to answer one of the most important questions a budget requires us to ask.
Is the union government then consciously shrinking its contribution to India's economic and social progress? Or is that it does not have the ability to plan and execute programmes and projects and therefore does not spend even the budgeted expenditure?
I am assuming that it is not under any pressure from financial markets or orthodox economists whose ideology does not allow them to see a role for the government even in a country at our stage of development.
Either way, with such an approach we only run the risk of slowing down our progress towards becoming a developed country.
The Economic Survey has already conceded that Indian business is neither in a position nor willing to do the heavy lifting.
A vast majority of our households can anyway not contribute much, as they are themselves dependent on supply of free food grains from the government.
This is what brings the Centre's spending arsenal into sharper focus.
During the current year (FY 26), the following major ministries/departments are expected to spend less than what they have spent during FY 25, which implies that a part of the increase in their budget for the next year, contributes just to getting them back to FY 25 level and inflation:
1. Agriculture and Farmers' Welfare
2. Atomic Energy
3. Civil Aviation
4. Consumer Affairs
5. Telecommunications
6. External Affairs
7. Ministry of Defence (Civil)
8. Revenue
9. Water Resources
10. Drinking Water & Sanitation
11. Road Transport and Highways
12. Skill Development and Entrepreneurship
13. Steel
14. Women and Child Development
At the same time, we have 50+ cases of revised expenditure being less than the budgeted expenditure during the current year, which implies that some of the increases may just compensate for the programmes and projects that are not being completed this year.
We, therefore, see that a 7.7% increase in budget spending for the next year is really only a 5.56% increase over this year's budget. CAGR between FY 25 and FY27 will, therefore, be 7.2%, with nominal GDP growth being 10%.
Some of these cases, where the expenditure is in line with the budget, involve transfer to various funds, which means that the money is not actually spent in the current year. It is, therefore, not surprising that government expenditure's multiplier effect is not being seen in the economy.
As mentioned earlier, our economic leadership's expectation that the private sector business will do the heavy lifting is unreasonable. GDP is about the government and business spending ahead of demand. If both do not spend, the economy does not grow. Household earnings come from business and government spending.
Sadly, a budget tailored for the global rating agencies has not kept this vital fact in mind.
