The Budget is a finely crafted document that starts with the fiscal deficit and manages all components in a cogent manner while embellishing the same with some forward-looking policies to deliver a very neat package. The background for the Budget was different, as the overall size of the exercise came in lower at Rs 47.16 lakh crore in FY25 as against a budgeted number of Rs 48.20 lakh core. Therefore, the increase of 7.4% in size over the Revised Estimates at Rs 50.65 lakh core for FY26 is the overall base that can be looked at closely.
Looking at all the numbers, the Budget has balanced various objectives. The income tax relief was very much on cards and the release of Rs 1 lakh crore is a booster for consumption and savings, depending on how the taxpayer uses this benefit. Interestingly, the income tax collections would be Rs1.81 lakh crore higher in FY26, against Rs 2.13 lakh crore last year. The lower amount would account for the relief offered to taxpayers. Intuitively, it can be said that if such a relief was not provided, the estimated collections would have been higher.
Second, the corporate tax collections have been taken to grow by 10.4% over 7.6% in FY24. The message is that corporate performance would be better this year. This should be encouraging for industry as corporate performance has been subdued in the first three quarters of FY25. The economy is to grow by almost the same rate of 6.3-6.8% (Economic Survey) in FY26, as compared with 6.4% in FY25 (Economic Survey). If the corporate sector does perform better, there could very well be an upside to the gross domestic product (GDP) growth forecast too for FY26.
Third, the excise collections on account of fuel have been kept unchanged. This would mean that citizens can be assured of unchanged prices in petrol and diesel. Therefore, if global prices were to rise, there would be protection provided by apportioning the cost between the government and the oil marketing companies. This is a positive from the point of view of inflation.
Fourth, there has been a plethora of changes in customs tariffs, with the proclivity to reduce, rather than increase. The customs collections have been assumed to rise by just 2%. Two conclusions can be drawn. First is that this review could have been made keeping in mind the talks that India will have with the US on tariffs being imposed here. Second, given the state of the global economy and the impact on trade, the assumption here is that imports per se may not be increasing sharply and that the currency would be largely stable.
Fifth, the non-tax revenue components also throw up some useful insights. The dividend/surplus from the Reserve Bank of India (RBI), public sector banks, public financial institutions are to be at the same level as last year at Rs 2.56 lakh crore (Rs 2.34 lakh crore last year). This means that there could be similar dividend transferred by the RBI, which had crossed the Rs 2 lakh mark in FY25. It would be interesting to see which components would generate this surplus with the sale of foreign exchange being the foremost source of income.
Sixth, the net borrowing programme has been targeted at slightly lower than last year at Rs 11.54 lakh crore. Here the gross borrowings are higher at Rs 14.82 lakh crore against Rs 14 lakh crore last year. But to ensure the market is not pressurised, the Budget has drawn from the Goods and Services Tax (GST) compensation fund to address some of the redemptions, which has helped to stabilise this amount. This is positive news for the market and bond yields will remain stable. The budgetary impact will, hence, be neutral.
Seventh, for financing the fiscal deficit the Budget is not taking into account any short-term borrowings and show less importance to small savings. This implies there is intent to stick more to market borrowings rather than dip into the National Small Saving Fund. In a way, it is more prudent as the cost of market borrowings is lower than that from the small savings account.
Eight, on the expenditure side the Budget has continued to focus on all the social welfare schemes.
The largest increases have been witnessed for the PM-Awas Yojana, which includes both rural and urban schemes. This is interesting because the revised numbers for FY25 were much lower than the budgeted numbers. Quite clearly, this scheme has to be pushed harder to ensure that more affordable homes are constructed and bought by the relevant sections of society.
Other outlays like subsidies and the Mahatma Gandhi National Rural Employment Guarantee Scheme, PM-Kisan have been retained at the FY25 levels, which will maintain the momentum. These are important because they are supplements for fostering consumption as they release funds or add to income directly when they are cash transfers.
The Budget has, hence, been drawn up quite dexterously, starting with the fiscal deficit ratio playing the role of anchor around which the other numbers have been built to deliver the best returns. Based on a conservative nominal GDP growth of 10.1%, there could be an upside benefit if it turns out to be higher in FY26.
Views are personal. The author is Madan Sabnavis, Chief Economist, Bank of Baroda