Finance Minister Nirmala Sitharaman’s 8th Budget outlined several measures proposed for boosting growth by mainly increasing consumption.
Despite targeting higher economic growth, the Budget size has been reduced from 14.7 per cent in 2024-25 to 14.2 per cent of Gross Domestic Product (GDP) in 2025-26. The only marginal increase is seen in the revenue expenditure of the Union Government from ₹47,16,487 crore in 2024-25 Revised Estimates (RE) to ₹50,65,345 crore in 2025-26 Budget Estimates (BE) with a growth rate of 7.3 per cent.
However, there is an absolute reduction in revenue expenditure from ₹48,20,512 crore in 2024-25 BE to ₹47,16,487 crore in 2024-25 RE (-2.2 per cent). This is also clear from the decline in GDP share from 11.3 per cent to 11 per cent during 2024-25 to 2025-26.
Capex dip
The Budget claimed that it is for boosting infrastructure development. But there is an overall reduction capital expenditure from 3.4 per cent of GDP in 2024-25 (BE) to 3.1 per cent of GDP in 2025-26 BE.
Though the Union government proposed to hike the transfers towards Centrally Sponsored Schemes (CSS) to ₹5,41,850 crore in 2025-26 BE, a 17.9 per cent decline in CSS transfers from 2024-25 BE to 2024-25 RE. This reduction is noted even in the fund allocation for MNREGA which remains same for 2024-25 RE and 2025-26 BE.
Similarly, the Finance Commission grants have declined from ₹1,32,378 crore in 2024-25 BE to ₹1,27,146 crore in 2024-25 RE, even though it is mandatory. The fiscal deficit is proposed to decline to 4.4 per cent in 2025-26 BE from 4.8 per cent in 2024-25 RE which is an indication of positive fiscal consolidation.
These changes indicate a shift in the government’s economic strategy, focusing on boosting consumption while maintaining fiscal prudence. However, the decrease in both the capital and revenue expenditure may raise concerns about its impact on economic growth and development.
Revenue side
On the revenue side, there is a decline in the revenue receipts from ₹31,29,200 crore in 2024-25 BE to ₹30,87,961 crore in 2024-25 RE. The revenue receipt has declined from 13 per cent in 2023-24 actual to 2024-25 RE to 10.7 per cent in 2024-25 RE to 2025-26 BE.
There is a decline in the corporate tax collection from 11.2 per cent to 10 per cent in the same period.
Also, customs and union excise duties have not improved much. Goods and Services Tax (GST) revenue growth remains same, 10.9 per cent for both the periods. There was no reference to GST compensation cess transfer to States for meeting their fiscal needs in the Budget presentation though the Union government is expected to collect ₹1.53 lakh crore.
The States’ share in tax has fallen from 12.8 per cent in 2024-25 RE to 11.6 per cent in 2025-26 BE. The tax share to the States remains the same — 30.1 per cent — instead of 41 per cent devolution. This decline in tax share will have serious implications on States’ development.
While, a reduction in the non-tax revenue is noted from ₹5,45,701 crore in 2024-25 BE to ₹5,31,000 crore in 2024-25 RE, a huge decline in the non-tax revenue is seen from 32 per cent in 2024-25 RE to 9.8 per cent in 2025-26 BE.
The government has not taken any steps to increase non-tax revenue collection and also on additional resource mobilisation.
Under these circumstances, reduction in the fiscal deficit from 4.8 per cent in 2024-25 RE to 4.4 per cent in 2025-26 BE is a matter of concern. Moreover, the reduction in subsidies, particularly the fertiliser and food subsidy allocation, may have implications for various sectors.
FDI, a welcome step
Attraction of foreign direct investment (FDI) is a welcome step for increasing investment and thereby growth. However, the announcement of 100 per cent FDI in health insurance sector and its impact on the economy has to be viewed in caution.
The Budget allocation for flagship internship programmes has reduced from ₹2,000 crore to ₹380 crore during 2024-25 BE to 2024-25 RE.
A promising announcement in this Budget is the provision of identity cards and health insurances for gig workers which is highly appreciable and this will be an incentive for the informal sector workers.
IT relief
More importantly, the announcement of no income tax payable up to ₹12 lakh is indeed a welcome move for taxpayers. However, the Budget fully neglected the saving habits by avoiding the claims such as house loan interest, principal payment of loan, provident fund, NPS savings and health insurances. This affects the compulsory saving nature of individuals which further reduces investment.
However, the Budget’s silence on additional revenue mobilisation to compensate the estimated revenue loss of ₹1 lakh crore is also cause for concern. In short, there are no specific schemes announced in the Budget for employment generation, controlling inflation and reducing inequalities in the economy.
Sumalatha is Assistant Professor, and; Anitha Kumary is a Visiting Faculty at Gulati Institute of Finance and Taxation, Thiruvananthapuram
