Focus on a Budget that builds India’s future, not liabilities

Unproductive capital expenditure and subsidies drain trillions without improving citizens’ daily lives.

Budgets are essentially about expenditures.

How much of national income (proxied by GDP) will the government appropriate for its expenditures? How much of it is wasted on unproductive outlays such as interest payments and pensions?

Does the government allocate adequately on public goods and services — defence, justice delivery, pollution control, and environment protection — that directly affect citizens’ quality of life?

Does it support those unable to earn enough to meet minimum needs through social welfare, without frittering away resources in freebies?

How does the government prioritise economic growth, and why does it spend large resources on capital expenditure? Do these investments genuinely boost growth, or do they sink into unproductive expenditure?

By examining budget expenditures carefully, these questions can be addressed.

Data from Budget 2025-2026 covering eight months (April to November) is now available, allowing an assessment for the current year. This also offers valuable pointers for shaping Budget 2026-2027.

Large expenditures, big wastefulness

The Union government’s budget expenditure for 2025-2026 was pegged at Rs 50.65 trillion, amounting to about 15 per cent of India’s GDP of Rs 357.14 trillion (first advance estimates).

By November, the government had spent Rs. 29.26 trillion, or 58 per cent of the budget.

Going by historical trends and the structure of expenditures, it is unlikely that the government will achieve notable savings. The revised estimates for 2025-2026 can, therefore, be expected to remain broadly unchanged, between Rs 50.5 trillion and Rs 50.75 trillion.

Interest and pensions alone will cost the government Rs 15.53 trillion — over 30 per cent of the total Budget). Interest payments represent the servicing of past debts.

With the government piling on debt, particularly over the last six years, there is no likelihood of these wasteful expenditures declining.

Stingy on public goods

The government was to spend about Rs 9.4 trillion on public goods and services (about 18 per cent of the Budget).

Expenditure on defence, internal security (CRPF, etc.) and administrative services amounted to Rs 8.71 trillion, consuming nearly 93 per cent of all spending on public goods and services. These expenditures are important, but they do not directly improve people’s daily lives.

By contrast, the government allocated only Rs 41.3 billion for faster disposal of court cases, and judicial infrastructure, and Rs 34.13 billion for environment and pollution control. With crores of pending court cases and 13 of the world’s 20 most polluted cities in the world in India, these expenditures are peanuts.

Social welfare and freebies

The government budgeted Rs 10.88 trillion for social welfare: food and agriculture subsidies (Rs 3.94 trillion), jobs and employment (Rs 1.43 trillion), direct cash/benefit transfers (Rs 1.86 trillion), indirect transfers (Rs 280 billion) and merit goods such as education and health (Rs 3.36 trillion).

No one can reasonably argue that the incapacitated — whether due to age, physical or mental disability — or those who temporarily lose jobs do not deserve government support. These are genuine social welfare expenditures.

However, many expenditures — such as foodgrains to non-poor, free or heavily subsidised fertilisers to large farmers, free/subsidised higher and technical education — amount to freebies.

Rough estimates suggest that genuine social welfare spending accounts for no more than 50 per cent of the budgeted social welfare outlay.

Unproductive capex

The government budgeted Rs 10.69 trillion for economic growth: of this about Rs 8 trillion was earmarked for infrastructure (Rs 2.52 trillion for the Railways, Rs. 2.87 trillion for roads, and Rs 610 billion for telecommunications).

There are serious questions about the productivity of these expenditures. Despite spending about Rs 7.5 trillion in last four years, railway passenger numbers in 2025 were less than in 2019. BSNL has continued to lose customers despite the government’s rescue packages exceeding Rs 3 trillion. Its contribution to economic growth is close to nothing.

Road capex has good spillovers, but for the last two years the government has camouflaged NHAI loan repayments as road capex — Rs 1 trillion last year, and another Rs 350 billion this year.

Unproductive capex is a double whammy; it provides little boost to economic growth, while saddling the government with debt-servicing obligations.

Budget 2026-2027

Learning from 2025-2026 expenditure, the lessons for Budget 2026-2027 are obvious.

The government must sharply cut down unproductive capex and wasteful freebies. A careful zero-based budget scrutiny could free up Rs 8-10 trillion.

The government must increase expenditure on beneficial public goods (environment and pollution control, creation of courts, and expeditious delivery of justice), qualitative social welfare services (focused attention to every poor and incapacitated family, unemployment safely value like MGNREGA, universal primary healthcare, outcome-linked nutrition support for children and women) and right economic growth expenditures (renewable energy transition, faster digitalisation, and mainstreaming AI). An additional Rs 5 trillion expenditure on these areas will do a lot of good.

The remaining savings should be used to reduce the fiscal deficit to below 3 per cent of GDP. This is necessary to prevent rising interest costs from consuming future budgets. The government must also adhere to the new pension scheme to ensure that pension liabilities do not spiral out of control.

Such measures will make for a wholesome budget — a Budget which India truly deserves.

Subhash Chandra Garg is former Finance & Economic Affairs Secretary, and author of ‘The Ten Trillion Dream Dented’, ‘Commentary on Budget 2025-2026’, and ‘We Also Make Policy’. (X handle: @Subhashgarg1960)

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