The general reaction to the Union Budget for fiscal year 2025-26 is mostly positive. Most people have appreciated the commitment to fiscal discipline. Substantial increase in the allocation for rural and urban development programs has apparently come at the expense of lower or no growth in the allocation for food, fuel & fertilizer subsidies, defense and transportation (road and railways).
The most celebrated aspect of the budget is the enhancement of tax rebate under section 87A from Rs25,000 to Rs60,000; and restructuring of tax slabs from the earlier three to six in the new scheme of personal income tax. These changes would result in a potential net tax saving of 2-6% of the post-tax income.
The most debated aspect of the budget is the allocation to the capital expenditure. Analysts are calculating the total allocation for capex using different matrices and thus debating in favor or against the budget.
The budget numbers assume a nominal GDP growth of 10.1% for FY26, which will roughly translate into a 6.5% real GDP growth. The Revenue Secretary, in an interview to the Economics Times, termed this as the trend growth (see here). He emphasized that “more structural measures” are needed to push this trend growth higher to 7%.
I find this the most concerning aspect of the present governance and market narrative. We seem to be totally disregarding the fact that 6.5%-7% real growth is merely sufficient to maintain the current trends in the development of social and physical infrastructure. To achieve the ambition of developed India (Viksit Bharat) all curves affecting the quality of life need to shift much higher. As highlighted by the latest Economic Survey, we would need a sustained 8%+ growth for a couple of decades to become a middle-income country (Viksit Bharat).
This budget or any other recent policy announcement of the government does not show any glide path in that direction. To this extent, the governance and market narrative suffer from an extreme degree of adhocism, opportunism and complacency. A total absence of discussions on structural reforms needed to catapult the economy to 8-10% growth orbit in the popular discourse is a worrisome sign. Being content with a few administrative changes and procedural efficiencies (mostly due to adoption of available technology) as “reforms” might not help much.
I would like to explain this situation with the help of four short stories, which I have narrated before also.
Freedom from bondage: There was this feudal lord, who had enslaved a number of peasants on different pretexts. He would make them toil hard the whole day and give two inadequate meals to survive. Occasionally, on festivals, birthdays of his children, his marriage anniversary, and death anniversary of his parents, he would treat them with a good meal and sweets. Once in 3-4yrs, during winters, he would give them new blankets so that they do not die of cold. In return, the bonded peasants were expected to hail him as protector and great benefactor of the poor. No one ever dares ask for freedom from bondage.
Eat ladoo and hail the minister: Once the home minister of a state visited the Jail on Independence Day. After finishing his speech, he distributed some sweets (Ladoo) and asked the inmates about their problems and what he could do for them. Most complained about mosquitoes and the quality of food. Few wanted new blankets. Some daring one asked for a large screen TV in the library. No convict asked for freedom. The minister granted their wishes and won their adulation.
Save me an extra half kilometer drive: A minister on his election campaign addressed a gathering of a housing society’s members in a posh Bengaluru location. The only request these educated upper middle-class people made to this politician was to “provide a right turn in front of the society gate, as they have to go 500 mtrs ahead to take a U turn” for travelling in the right direction; disregarding the fact that providing this “right turn” would be “wrong” as it would cause huge traffic disruptions and frequent traffic snarls in front of the society gate. No one asked him to give an undertaking that he would not encourage corruption, if elected.
Art of staying relevant: In the late 1980s, I had an opportunity to attend a budget committee meeting of a large medical college cum hospital. The twelve-member committee comprised two doctors, three administrative in-charge, district magistrate (ex-office), local MLA (govt nominee), and five prominent local citizens. The total annual budget of the college was close to Rs230 crores. The committee cleared 73 expenditure proposals worth Rs180 cores in less than one hour. The 74th item of agenda was a bicycle-shed for Class-IV employees of the college/hospital. The budget sought for this item was mere Rs3.5 lacs. This would have helped over 200 employees coming to work on bicycle, as the scorching heat often resulted in deflation of bicycle tyres. The committee discussed the matter for more than two hours and rejected the proposal. Later, the dean of the college explained that this was the only item on agenda, besides salaries, which all committee members understood fully. They used all their wisdom in discussing this item and saved Rs3.5 lacs for the college, thus justifying their relevance to the college and society!
