By Bishwajit Bhattacharyya
The Union Budget 2026-2027 (Union Government’s estimated receipts and expenditure from 1.4.2026 to 31.3.2027) has been presented in Parliament today by Union Finance Minister Nirmala Sitharaman.
Estimated receipts of Rs 36.51 trillion fall short of estimated expenditure of Rs 53.47 trillion, by Rs 16.96 trillion, which reflects a fiscal deficit of 4.3 percent of budgeted GDP of Rs 393 trillion.
The budget estimates of fiscal deficits in the previous five years, from 2021 to 2025, were 6.5%, 6.4%, 5.9%, 4.9% and 4.4% respectively; thus, the fiscal trajectory has been on the correct path, though the pace has been rather slow. Fiscal deficit must be curtailed to 2.5% of GDP next year. This is achievable and requires savings/generation of additional Rs 7 trillion, by maintaining strict fiscal discipline.
Fiscal discipline entails overhauling the revenue collecting machinery and curtailing a bloated establishment expenditure of the Union Government (Rs 8.24 trillion). This should be government’s priority number one!
Gross tax revenue is budgeted at Rs 44.04 trillion; out of this, direct tax is Rs 26.97 trillion and indirect tax is Rs 17.07 trillion. Out of direct tax of Rs 26.97 trillion, individuals contribute Rs 14.66 trillion and corporates Rs 12.31 trillion. Out of indirect tax Rs 17.07 trillion, GST is Rs 10.19 trillion, Union Excise duty is Rs 3.89 trillion and Customs duty is Rs 2.71 trillion, plus additional misc Rs 0.28 trillion.
It is noticed that income-tax to corporate-tax ratio is: 1.19 : 1. This means individuals pay more direct taxes than corporates. This is inequitable; individuals must not be burdened to subsidise direct taxes to corporates!
It is commendable, however, that direct taxes (Rs 26.97 trillion) are outgrowing indirect taxes (Rs 17.07 trillion). Indirect taxes cause inflation. Rate of indirect taxes may, therefore, be reduced; correspondingly, rate of corporate taxes may be increased. This exercise would be revenue neutral, while arresting inflation.
From gross tax revenue collected by Union Government, a slice is required to be distributed to the States; this is mandated by Article 270 of the Constitution. The budgeted amount of Rs 15.26 trillion of tax revenue to be transferred to the States is reasonable. Tax revenue distributed to States in previous 5 years from, 2021 to 2025, were Rs 6.65, 8.16, 10.21, 12.47 and 14.22 trillion respectively.
These figures indicate that the Finance Commission has been discharging its constitutional obligation reasonably well. However, cesses and surcharges must be brought into the divisible pool to boost federalism.
Non-tax revenue budgeted at Rs 6.66 trillion seems optimistic. These figures in last 5 years, from 2021 to 2025, were Rs 2.43, 2.69, 3.02, 5.45, and 5.83 trillion respectively. The main sources of non-tax revenue are dividends and profits from Public Sector Undertakings. Focus should be directed to administer PSUs professionally with strong accountability. Rather than mopping up one time revenue from disinvestment, strengthening PSUs is a far better option. And depending on dividend from RBI to curtail revenue shortfall is retrograde.
On the expenditure side, the total amount budgeted is Rs 53.47 trillion. Government plans to borrow a hefty sum (32% of budgeted expenditure) to bridge revenue shortfall. Amid fiscal strain, Government’s propensity to borrow is undesirable.
Government’s burgeoning interest liability is disconcerting; the interest burden has grown from Rs 8.09 trillion in 2021 to Rs 14.04 trillion in 2026, reflecting an increase of 74%. Interest burden alone wipes out corporate taxes! This is alarming!
The easy option to borrow and distribute borrowed funds must halt! Should we inundate our next generation with debts?
Impressive numbers of GDP and growth lose meaning if we are fiscally imprudent! We must recognise that a fiscally healthy India alone can become a super power! We need not wait till 2047! We have the best human resources. We only need to enforce fiscal discipline doggedly. We are failing in this area.
Fiscal Responsibility and Budget Management (FRBM) Act, 2003 was enacted by the Parliament 23 years ago; the objective was to institutionalise fiscal discipline. But what happened to this law? It has been breached systematically! And the breaches are being regularised year after year!
Charity begins at home. Union Government must curtail its massive establishment expenditure of (Rs 8.24 trillion). Establishment expenditure now exceeds India’s defence expenditure by 39%! Will it be feasible to hive off a part of the establishment and relocating it to Defence? This will trim the establishment and add heft to our defence.
Defence expenditure needs to be enhanced in view of our hostile neighbours and vitiated geo-political environment. The proposed expenditure of Rs 5.94 trillion seems inadequate. This must be increased by at least Rs 2 trillion.
Subsidies have been budgeted at Rs 4.10 trillion; the components of subsidy are: food, fertiliser and petroleum amounting to Rs 2.27 trillion, Rs 1.70 trillion and Rs 12,085 crore respectively. Petroleum subsidy must be enhanced considerably.
Grants in Aid for creation of Capital Assets of Union Government of Rs 4.92 trillion seem adequate. Expenditure on capital account is Rs 12.22 trillion is adequate. Effective capital expenditure is thus Rs 17.14 trillion, which, ironically, is the approximate amount of fiscal deficit (Rs 16.96 trillion).
Pension, budgeted at Rs 2.96 trillion, is a huge increase from Rs 2.76 trillion last year. Pension cannot possibly be reduced, but some restraint must be exercised. This requires careful handling as the Supreme Court has ruled that pension is not a bounty but a right.
Overall, expenses for Non-Development expenditure are Rs 37.24 trillion [14.04 (interest burden)+8.24 (establishment expenditure – 1.66 salary +2.77 pension + 4.25 other expenses), 5.94 (Defence) + 4.10 (subsidy) +4.92 (Grants in Aid of Union Government) = Rs 37.24 trillion : this leaves a residual sum of only Rs 16.23 trillion. When Rs 12.22 trillion of capital expenditure is deducted, we are left with only Rs 4.01 trillion for development expenditure, which is inadequate for our country with a GDP of Rs 393 trillion; hence the dire need to maintain strict fiscal discipline. We need to generate optimum revenue desperately.
The total debt of the Union government, internal and external combined, has been budgeted at Rs 215 trillion. GDP has been budgeted at Rs 393 trillion. So, the Debt/GDP ratio has been budgeted at 55%. This percentage is hardly comfortable.
It is often forgotten that the backbone of the budget is tax revenue. Out of Rs 53.47 trillion of total expenditure, a sum of Rs 44.04 trillion is garnered from tax revenue alone! This is 82.4% of total expenditure. All theories by economists will fail if legitimate tax revenue is denied to the government. Even today cash economy is thriving, and, thanks to leakage, huge tax revenue is eluding the exchequer! India’s potential to become a superpower continues to elude her!
I remain, however, an eternal optimist, since India’s infinite spiritual power, and latent goodness hidden in each soul, is bound to manifest soon so that India’s hungry (India ranks 102 out of 123 countries in Global Hunger Index 2025) are fed adequately! This is the sacred land of Gautam Buddha and Swami Vivekananda!
—Bishwajit Bhattacharyya is a Senior Advocate and former Additional Solicitor General of India
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