The Union Budget for 2025-26 has been praised by Bank of Baroda economists for maintaining fiscal prudence and stability in its borrowing program. The budget aims to increase spending on infrastructure projects, rural development, and agriculture, with the overall expenditure projected to rise to Rs 50.7 lakh crore from Rs 47.2 lakh crore in the current fiscal year. The government has also maintained a sharp increase in capital expenditure (Capex), with a targeted increase of 9.8% to Rs 11.2 lakh crore. The capex-to-GDP ratio is expected to remain steady at 3.1%.
The government’s revenue is expected to grow in line with nominal GDP, with net revenue collections estimated to increase by Rs 3.3 lakh crore. Gross tax collections are expected to register a significant increase in FY26, driven by growth in corporate tax receipts and indirect tax collections. The budget has also provided a tax rebate of Rs 1 lakh crore, which is expected to lead to a lower increase in income tax collections.
The budget has set a target to reduce the debt-to-GDP ratio to 56.1% in FY26, lower than the estimated 57.1% in FY25. The government also plans to bring down the fiscal deficit to 3.7% of GDP in FY26, in line with the fiscal glide path outlined in the budget for 2021-22.
The report highlights that the budget has identified key areas of focus for the next five years, including employment, skilling, agriculture, MSMEs, women, infrastructure, and space technology. The budget’s focus on rural development and agriculture is expected to drive growth, with the Centre’s overall expenditure on these sectors expected to increase.
Overall, the budget’s focus on maintaining fiscal prudence, increasing capital expenditure, and driving growth in key sectors is expected to be positive for markets. The increased spending on infrastructure and rural development is expected to boost economic growth, while the government’s debt-to-GDP ratio is expected to decline steadily over the next few years.