Market did not react positively to the budget proposals and it’s largely related to an increase in securities transaction tax on options. From a growth perspective, the economy is expected to grow beyond 7% in the next year which might not be good enough but satisfactory. Macro balance sheet is strong and that was visible in the economic survey as well as budget documents. Our financial sector looks stable and the banking sector balance sheet is healthy. However, the external sector still poses a threat and the benefit of major trade deals (like EU) will take a year or so to get ratified.
FM highlighted that the fiscal deficit for FY25-26 is within the targeted range of 4.4% of the GDP and it has been reduced to 4.3% for next year. Central government has targeted to bring down the Debt:GDP ratio to 51% by 2031. Capital expenditure has been further increased to 12.2 lakh crores
However, we should also see the break-down of 2025 revised estimates which gives an idea that actual expenditure on various social schemes is much below the base estimate for 2025. To name a few, actual expenditure on national drinking water mission, PM awas yojana etc. is much lower than the budgetary estimates and therefore policy makers should be questioned on the factors which led towards this outcome. Similarly, some big announcements have been made for the MSME sector but if we see the previous year budget allocation versus the revised estimates then schemes announced for liquidity and capital availability like the emergency credit line guarantee scheme remained on paper only. Proposed budgetary outlay was 9,000 crores in 2025 for emergency credit line guarantee scheme while it is nil in the revised estimates. If we see the allocation for defense R&D, aircraft & aero engines then it has gone down on an overall basis. This is even though everyone understands the importance of R&D in the technological sector and we are seeing delays in delivery of indigenous aircraft due to non-availability of jet engines. General R&D budget was 20,000 crores in the 2025 budget while it has been reduced to 3,000 crores in the revised estimates.
Taxation
On the taxation front, safe-harbor measures, tax holidays to data centers, decriminalisation of various compliances are good initiatives. However, a question should be asked: what happened to the taxpayer charter and timelines promised under the said charter? A higher share of personal income tax in the overall direct taxes should be a matter of concern in a low income country like India but we hardly see these issues in any public debate.
Announcements made in the budget should not be taken merely on the face value and effectiveness of the schemes should be measured on the basis of tangible outcomes. To give an example, ‘National Manufacturing Mission (NMM)’ which was announced in the 2025 budget and manufacturing has been the key priority for this government since it came to power in 2014. However, from the statistical standpoint, the share of value addition (GVA) by the manufacturing sector has reduced from ~17% in 2014 to ~16% in 2024. In other words, despite all the good intent and policy intervention by the center, the outcome is not visible and the existing global outlook is not going to make things easy.
The NDA government has done a phenomenal job in areas like uplifting the poor class, developing a robust financial system architecture, structural reforms like GST & insolvency code, tacking bad loans of banks, liberalising the FDI norms etc. but this is high time to look beyond what has already been done. Policy reform is a continuous process and monitoring the outcomes is also needed for necessary intervention. In a federal structure, a lot of responsibility for creating a conducive business environment lies with the state government as they have a say in matters related to land, law & order, labour. At least NDA ruled states can lead by example given the fact that barring a few, almost all big states are now ruled by the NDA coalition. The real problem lies in the fact that India did not capitalize the opportunity which arose after Covid pandemic when multinationals wanted to de-risk their operations by moving some processes away from China.
Key Performance Indicators
Various ministries and public information bureau publish routine bulletin but the government should look forward to developing the ‘Key Performance Indicators (KPIs)’ for various departments. For example, on-time performance, no. of accidents, cleanliness, new rail lines etc. can be KPI for railway ministry and different departments should formulate their own KPIs and frequency for performance measurement. There is a common perception that the government officials have no accountability towards the public which is evident in the interaction with the officials. The attitude of public officers has hardly changed even in this age of social media.
Developing and monitoring the plan, performance evaluation, continuous policy intervention etc. are not something which was not talked about earlier. However, we hardly see any improvement in the situation which is evident from the project delay report published by MoSPI. A citizen is expected to comply with all the ridiculous legislations and meet the timelines so isn’t it imperative on the government also to at least meet the timelines related to basic civic infrastructure? Lack of coordination between different organs of the same government is another issue which causes delay in project completion and adds to the public inconvenience. A common man is neither privy nor interested in the bureaucratic process, but when he sees the same road getting dug frequently by the multiple agencies then he gets frustrated. There is another aspect that delay in implementation, frequent changes in the scope of work, and at times the willful incoordination among departments gets reflected into the budget and provides opportunity to everyone to grab their lion’s share.
Amongst the major announcements made by the FM, infrastructure push in tier-2 & tier-3 cities is on the cards. The government should let the people know about the outcomes of ‘smart city’ mission and outline the measures which they are going to take so that this initiative does not meet a similar fate. While we can keep the long-term goals for our economic development, we must break down these goals into short term milestones so that a meaningful evaluation can happen and policy intervention can be made on need basis.
