Crystal-gazing Nirmala Sitharaman’s Budget 2025

There are many pressing economic reforms, related to agriculture, privatisation, industrial, and doing business with China. However, the government is unlikely to wade into any of these areas

Budget is a statement of revenues, expenditures, and fiscal deficit.

Budget speeches also feature announcement of new and flagship development programmes, including scaling up of on-going major programmes. Tax and economic policy proposals in the Budget are usually the most watched out and commented upon.

Budget is a secret document; however, you can always make an intelligent forecast. What will the Budget 2025-2026, to be presented by Finance Minister Nirmala Sitharaman on February 1, have in it, in terms of key numbers, programmes, and policy measures?

Fiscal deficit

Budget 2024-2025 had proposed total expenditures of Rs 48.21 trillion. Total revenues (tax and non-tax) and non-debt capital receipts (including disinvestment) were pegged at Rs 32.07 trillion, leaving the resultant fiscal deficit of Rs 16.13 trillion, which was 4.9% of the estimated nominal GDP of Rs 326.37 trillion.

Of the three key components of the Budget equation — expenditures, revenues, and fiscal deficit — fiscal deficit, likely to be restricted at 4.5% of the GDP, will be the primary driver of Budget 2025-2026.

The NSO has estimated 2024-2025 GDP at Rs 324.11 trillion, generating a growth of 9.7% over 2023-2024. Given obtaining growth and inflation dynamics, the government is likely to assume 10% growth pegging the estimated GDP for 2025-2026 at Rs 356.52 trillion.

The fiscal deficit for 2025-2026, at 4.5% of the GDP, would, thus, be Rs 16.04 trillion.

Receipts

The Overall Gross Tax Receipts (GTRs) of Rs 22.61 trillion, at end-November, recorded growth of 10.72%, in line with built-in growth in 2024-2025 GTRs receipts. The GST growth at 9.1% (until December) and corporate tax receipts at (-)0.53% (until November) have been insipid, but personal income taxes have done quite well.

The government is likely to keep net Centre’s Tax Receipts (CTRs) unchanged at Rs 25.83 trillion in 2024-2025 (Revised Estimates(RE)). Given the trend of growth, profitability, and income, the CTRs for 2025-2026 are likely to be projected at Rs 28.41 trillion at 10% growth.

The Reserve Bank of India (RBI) surplus inflated 2024-2025 non-tax receipts (NTRs) of Rs 5.46 trillion are unlikely to be bettered in 2025-2026, and are estimated at Rs 5.25 trillion. With the disinvestment programme virtually shuttered, capital receipts are estimated at Rs 0.75 trillion for 2025-2026.

The total receipts for 2025-2026 are, thus, likely to be Rs 34.41 trillion.

Expenditures

Receipts of Rs 34.41 trillion and a fiscal deficit of Rs 16.04 trillion will provide resources of Rs 50.45 trillion for 2025-2026 expenditures, against Rs 48.21 trillion in 2024-2025, resulting in a small increase of 4.64%.

Capital expenditure (capex), the most watched item on expenditure side, in 2024-2025RE is likely to be Rs 10 trillion against budgeted Rs 11.11 trillion. Taking the government’s penchant to enhance capex budget every year, the 2025-2026 capex is likely to be Rs 12 trillion, including Rs 1.75 trillion of capex loans to states.

Considering the trend of growth of debt and interest payments, the interest payments for 2025-2026 are estimated at Rs 13 trillion. Capex of Rs 12 trillion and interest payment of Rs 13 trillion will leave only Rs 25.5 trillion for all other expenditures in 2025-2026.

As the government had similar resources (Rs 25.47 trillion) in 2024-2025 for other expenditures, the government will have to keep all other expenditures overall flat in 2025-2026.

New programmes

The Prime Minister’s Rojgar Yojana (PMRY), comprising three employment-linked incentive (ELI) schemes, an internship scheme, and upgradation of 1,000 ITIs, was the only major development programme announced in the 2024-2025 Budget. The PM Awas Yojana (PMAY) target of 3 crore beneficiaries was announced during the year.

The PMRY has singularly failed to take off. The government might come up with some tweaks to make it implementable. The PMAY and the Jal Jeevan Mission (JJM) are likely to be provided with budgets of Rs 75,000 crore and Rs 60,000 crore respectively.

To target the populous segment of voters — farmers, women, and youth which constitute bulk of the poor, and to claim political credit — the government may increase PM-KISAN payouts to Rs 9,000 per year, and initiate a pan-India cash-handout programme for women, subsuming state level programmes, with a 60-40 cost sharing with the states.

Tax measures

There is immense pressure from the middle-class for income tax relief.

The most sensible option to provide legitimate tax concessions to the vocal middle-class is to merge the two alternative tax regimes (keeping 80C and other major tax concessions like interest payment on housing loans intact), raise the minimum threshold to Rs 5 lakh, and revise starting income limit for the highest 30% slab to Rs 25 lakh.

The government, however, is most likely to persist with the alternative tax regime, and may raise the current effective no-tax income level from the current Rs 7.5 lakh to Rs 8.5/10 lakh.

Other policy reforms

There are many pressing economic reforms, which include replacing agriculture input subsidies and the MSP regime with direct cash transfers, reviving the privatisation and disinvestment programme, streamlining the PLI and other industrial subsidies to focus only on three dynamic sectors (electronics, energy transition, and infrastructure), and doing business with China.

The government is, however, unlikely to wade into any of these areas. Budget 2025-2026 will continue the state of policy stasis.

(Subhash Chandra Garg is former Finance & Economic Affairs Secretary, and author of ‘The Ten Trillion Dream Dented’, Commentary on Budget 2024-25 and ‘We Also Make Policy’.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.