 "Aditi Nayar, chief economist, Head-Research & Outreach, Icra")
The Union Budget for FY26 expectedly placed the fiscal deficit for FY25 as per the Revised Estimates (RE) at 4.8 per cent of GDP, marginally lower than the Budget Estimate (BE) of 4.9 per cent of GDP, and in line with our forecast. In FY26 BE, the Government of India’s (GoI’s) fiscal deficit has been pegged at 4.4 per cent of GDP, broadly in line with what the medium term path had foretold, and a shade lower than our projection of 4.5 per cent.
The macro underpinning starts with a nominal GDP growth assumption of 10.1 per cent, similar to our own forecast of 10 per cent. The biggest surprise in the Union Budget was the extent of changes in personal income tax and other changes related to cesses as well as direct and indirect taxes, which the GoI expects to result in a substantial tax foregone of over Rs 1 trillion. Encouragingly, these proposals should boost consumption for the middle class. Simultaneously, the proposed scheme for urban workers should support consumption at the bottom of the pyramid.
Notably, gross and net tax revenues are budgeted to expand by 10.8 per cent and 11 per cent, respectively, which seems a bit optimistic given the extent of the revenue foregone. The new Income Tax Bill to be presented next week will be eagerly awaited for the fine print and details.
Non-tax revenues are forecast to expand by 9.8 per cent, benefitting from a rise in dividends and profits. Moreover, disinvestment has been targeted at Rs 47,000 crore, which is a reasonable Budget target in our view.
Revenue spending growth of 6.7 per cent is somewhat higher than our forecast. Importantly, capital expenditure, which has been revised lower to Rs 10.2 trillion in FY25 RE, has been enhanced to Rs 11.2 trillion in FY26 BE, a healthy, and equally important, seemingly achievable growth of 10.1 per cent.
The writer is chief economist, Head-Research & Outreach, Icra
