Focus on fiscal stability

IT HAS NOT ADDRESSED HOW TO PREPARE INDUSTRY TO MAKE THE MOST OUT OF THE FTAs

- R GOPALAN MC SINGHI

BUDGET 2026-27 FACED an external situation that is still challenging despite US President Donald Trump’s decision to impose reciprocal tariffs of 18% and remove the Russian oil tariff. The Budget has been built on the advantages generated by rationalised goods and services tax (GST) and income tax rates. It focuses on fiscal stabilisation and Viksit Bharat 2047.The attempt at fiscal stabilisation seems reasonable, while more needs to be done on Viksit Bharat.

Keeping growth concerns in mind, expenditure compression is gradual in this Budget, with the fiscal deficit going down from 4.4% to 4.3%. However, we need to see the glide path of debt-to-GDP by FY31, as the government will be facing increased outflows in the next few years due to the implementation of the Pay Commission recommendations.

The Budget attempts to ensure that expenditure is restricted to its ability to raise revenues. Aspirations of revenue collections next year will be dependent on the nominal growth rate. Buoyancy assumed in collection seems to be in trend with the past, but nominal growth will play a critical role in determining buoyancy. Without 3-4% inflation, price, income, and growth assumptions may not materialise. The government must attempt to increase revenues to meet the requirements of expenditure through disinvestment and asset monetisation, bringing more people under the tax net with technology, applying GST to professions that are excluded, and taxing agricultural income above a threshold. The tax-to-GDP ratio combined with the states must be more than at least 20%.