On the ball

The end of the once-in-a-lifetime pandemic marked the beginning of a seminal shift in the government’s fiscal strategy.

Promoting growth by building infrastructure through budgetary spending, rather than proffering consumption dollies, became the guiding principle.

The Interim Budget stays with that mindset, while trimming the fiscal deficit target by 70 bps to 5.1 per cent for the coming fiscal year.

That’s admirable for two reasons: this is an election year, and the rural economy has not done well.

Such a stance was crucial for the Indian economy to be on the glide path to achieving a fiscal deficit of 4.5 per cent of GDP in two years.

Fiscal consolidation gives comfort to foreign investors, reduces the cost of borrowing for the government, and makes it easier for the central bank to maintain price stability.

The budgetary capex by the government has risen 4.6 per cent of GDP for fiscal 2025, higher than 4.3 per cent achieved in the current fiscal.

Support to the rural economy has been provided through asset- and employment-creating programmes such as MGNREGA, rural road building, and extension of the rural housing scheme. The underlying nominal GDP growth assumption of 10.5 per cent for the Budget and tax collection estimates are realistic.

In the current fiscal, despite nominal GDP growth at 8.9 per cent — which is lower than the 10.5 per cent assumed — tax collections surged 2.3 per cent above the budgeted estimate.

The higher tax buoyancy was facilitated by the government’s formalisation push via measures such as streamlining of tax deducted at source (TDS) and goods and services tax (GST). These gains should play out next fiscal as well. Net-net, this is a fiscally prudent, growth-promoting and non-inflationary pronouncement.

Spot on for the current economic context.