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Informist, Wednesday, Feb. 19, 2025

 

NEW DELHI - The Union Budget for 2025-26 (Apr-Mar) reaffirms the government's commitment to foster inclusive long-term economic growth, while sticking to fiscal discipline, according to the Reserve Bank of India's staff. "With a fiscal deficit target of 4.4% of GDP, the Budget prudently balances fiscal consolidation and growth objective," according to an article by the RBI staff.

 

Finance Minister Nirmala Sitharaman presented the Budget for FY26 on Feb. 1, with a macroeconomics backdrop that included a slowdown in the economy's growth momentum with muted consumption demand. The government "has continued with its focus on capex alongside consumption boosting measures which would help the economy to improve its growth momentum," RBI's staff said. 

 

The article titled 'Union Budget 2025-26: An Assessment' was written by central bank staff in the Department of Economics and Policy Research. The views expressed in the article do not reflect the central bank's official stance.

 

One of the key takeaways from Sitharaman's eighth Budget was the hike in the tax rebate limit to INR 1.2 million, effectively meaning that individuals with income of up to INR 1.2 million per year will be entirely exempted from paying income tax. The tax relief is "expected to bolster household disposable incomes, and stimulate consumption, savings, and investment," the article said. 

 

On the expenditure side, the central bank's staff noted that the revenue deficit as a percentage of gross fiscal deficit is budgeted at an all-time low of 33.4%, "indicating improvement in the quality of expenditure." The revenue deficit for FY26, as a percentage of GDP, is projected at 1.5%.

 

"Through structural reforms, augmented investments in critical sectors, and the rationalisation of taxes and expenditure, the government seeks to maintain a stable macroeconomic environment conducive to robust and sustainable growth," the article said.

 

The central bank's staff also mentioned that the interest payment to revenue receipts ratio is budgeted at 37.3% in FY26 and that, as an indicator of debt sustainability, "remains favourable". This interest payment-to-revenue ratio has been a hurdle for India to secure a rating upgrade by global agencies. The government has said that going forward the interest-to-revenue receipts ratio will be a "guiding tool" for fiscal management. 

 

The central bank's staff paper also said that the "gradual downscaling in the market borrowing requirements (as per cent of GDP) of the Union government towards the pre-pandemic level will facilitate greater availability of resources for the private sector." At INR 14.82 trillion, government's gross market borrowing for FY26 is 4.2% of GDP. In percentage of GDP terms, this is the lowest in four years.  End

 

Reported by Priyasmita Dutta

Edited by Ashish Shirke

 

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