Living up to expectations

GOVERNMENT EMPHASIS IN RECENT MONTHS RAISED EXPECTATIONS THAT THE BUDGET WOULD INCENTIVISE EMPLOYMENT-INTENSIVE SECTORS

- Sudipto Mundle, Chairman, Centre for Development Studies

This was Finance Minister Nirmala Sitharaman's eighth Budget, but the first full Budget of the new government, or the first Budget of what economists call the political business cycle. Typically, a government can prepare fiscally prudent and reform-oriented Budgets during the first half of its tenure. The second half is taken over by electoral consideration. From this perspective, it was expected to be a hard, no-nonsense Budget. The Economic Survey also built expectations that the Budget would be reform-oriented. The government's emphasis in recent months on the importance of employment built expectations that the Budget would incentivize the growth of employment-intensive sectors. Remarks by the President and the Prime Minister also raised expectations that it would include measures for the middle class. It turns out that the Budget has indeed lived up to all these expectations, difficult as that may sound.

Let's start with headline numbers on fiscal deficit (FD). Compared to the budget estimate of ₹48.2 lakh crore, total expenditure turns out to be ₹1 lakh crore less at ₹47.2 lakh crore in the revised estimate (RE), rounded to one decimal point. Revenues are also lower at ₹30.9 lakh crore (RE), leaving an FD of 4.8% of GDP. This overshoots the Budget target of 4.9%. For FY26, the Budget has set an FD target of 4.4%, again a shade lower than that of 4.5% by FY26 the FM had set earlier, reinforcing her reputation of strong fiscal prudence. She has also spelt out a six-year roadmap of gradually bringing down the central government debt-to-GDP ratio, which is the ultimate goal of deficit reduction.