Though the granular details of the proposals would be known only on the B-day, tax slab alteration and other tweaks to extant imposts under the old tax regime are being bruited
As the Union Budget for 2025-26 of the National Democratic Alliance-coalition government, led by the Prime Minister Narendra Modi, is all set to be presented on February 1, it now seems the best of times and the worst of times for all the stakeholders! For the Finance Minister Nirmala Sitharaman, presenting her eighth budget with no milestone to her credit, the options are nothing to feel gung-ho about. A medley of the harsh effects of the ravaging rise in the cost of living for both urban and rural people, albeit inflation getting tamed, swelling fiscal deficit with unsustainable debt servicing cost coupled with a stronger dollar, meant the road ahead is rocky.
As the mandarins in the Finance Ministry feel cocky over the tax receipts buoyancy when the economy is stuttering and the consumption trends showing scant traction, reports doing the rounds at this time speak of the government’s interest in dangling tax breaks lest it should leave more disposable income and invest with spending power to people. This may be to keep the interest of organised workers, but what muddies the picture is its peremptory decision in setting up the Eighth Pay Commission for its 11 million employees, both serving and the retired cohort. Just recall that the implementation of the 7th Pay Commission threw an additional burden of one lakh crore rupees in 2016-17. Such a pampering of a minuscule segment at taxpayers’ cost makes the suffering of people sans job and income a travesty of good governance inasmuch as it is bad economics.
Though the granular details of the budget proposals would be known only on the B-day, tax slab alteration under the new tax regime and other tweaks to extant imposts under the old tax regime are being bruited. Included in such a conjecture are palpable guidelines governing taxation of modern assets and enhanced deductions for investments to lessen tax burden and accord an impetus to growth impulses.
A point to ponder is that in their pre-budget parleys, the industry lobby pitched for enhanced capital expenditure (capex) by the government even as it had been doing the heavy lifting through borrowing binges in the last couple of years for building physical infrastructure. In contrast, the National Statistics Office’s (NSO) projection in this context of gross capital formation growth dwindling to 6.4 percent in 2024-25 from 9 percent in 2023-24 signals sadly that private capex, which is dependent on domestic and global demand, stays stagnant even when the public capex target of Rs 11 lakh crore for the current fiscal is unlikely to be hit.
Ironically in the run-up to the next fiscal year budget, the NSO data on GDP numbers released recently corroborated the prevailing gloom and concerns about the visibly wobbly trajectory of the economy. It foresees GDP to grow at a four-year low pace of 6.4 percent from 8.2 percent in 2023-24, the final year of the second term of Modi Sarkar. So between single-party governance and the transition to run a coalition government, the negative upshot tellingly is on the economy, policy wonks plaintively say. This is as it should be because the elbowroom for bold and innovative actions gets circumscribed to keep the boat from capsizing by faulty decisions that might come home to roost. The moot point now exorcising the economy watchers is how far the Finance Minister will take risks at a time when the external conditions remain glaringly jittery with domestic stakeholders pitching for pie-in-the-sky proposals on what the budget could dish out or deliver.
That the constraints are an open secret is not in doubt. In a written response to a query in the Lok Sabha during the winter session when the Parliament witnessed daily disruptions, Union Minister of State for Finance Pankaj Chaudhary has claimed that revenue expenditure as a percentage of total expenditure has been on a declining trend from 87.9 per cent in 2020-21 to 84.4 percent in 2021-22 and 82.4 percent in 2022-23 (the latest available year at the end of 2024). The fact that the revenue expenditures range from general services, social services, economic services to grants-in-aid and contributions and nothing of the developmental sort for building durable assets with permanent advantages accruing to the beneficiaries and the economy meant nothing substantive to the stakeholders.
With elephants in the room, such as distinct slowdown in growth in general and tepid growth in private consumption of people and insipid private investment by the entrepreneurial class, the Budget 2025-26 has limited room for maneuverability in managing income-expenditure balance. This remains an uphill task for far too long, given the structural shortcomings the economy is afflicted with due to lack of perspective planning and perspicuous thinking down the years. To spend interminably without ensuring income is as bad for the individual as it is for the nation too. It is time priorities got fixed, beginning by doing more on social infrastructure—elementary healthcare and expanding general education to legions of people who remain untouched by all the vaunted welfare services. To build a beautiful edifice of the nation, bedrock should be on the solid rock of human capital, as a wag would put it!
(The writer is a senior economic journalist based in New Delhi.)
