The Union Budget for 2025-26 has been analyzed by economists at Bank of Baroda, who have found that it maintains fiscal prudence while prioritizing public spending and government borrowing. The budget allocates significant resources to large infrastructure projects in highways, railways, and ports, as well as rural development and agriculture, which will drive growth. The Centre’s overall expenditure is expected to increase from Rs 47.2 lakh crore to Rs 50.7 lakh crore, led by both revenue and capital spending. The government’s capex spending is expected to increase sharply to Rs 11.2 lakh crore from Rs 10.2 lakh crore, representing 3.1% of GDP.
The government’s tax revenue-GDP ratio is expected to remain stable at 12% in FY26, with the direct tax-GDP ratio increasing to 7.1% from 6.9% and the indirect tax-GDP ratio remaining unchanged at 4.9%. The fiscal deficit as a percentage of GDP is expected to decline by another 0.40% in FY26, bringing it down to 56.1% from 57.1% in FY25. The government also plans to lower its debt-GDP ratio to below 50% by 2031, as recommended by the 16th Finance Commission.
The report highlights that the Centre’s net revenue collections are estimated to increase by Rs 3.3 lakh crore, driven by an increase in corporate tax receipts and indirect tax collections. The government has also decided to forego Rs 1 lakh crore as a tax rebate, which will lead to a lower increase in income tax collections. Indirect tax collections are projected to increase at a slightly slower pace compared to direct taxes, driven by higher domestic consumption and compliance.
Overall, the budget is seen as positive for the markets, with a focus on infrastructure, rural development, and agriculture driving growth. The government’s plan to lower its debt-GDP ratio and fiscal deficit, while prioritizing public spending and borrowing, is also seen as a positive step towards fiscal prudence.