The marathon lady isn’t going to break into a sprint.
The finance minister, Nirmala Sitharaman, who presented her ninth successive budget on Sunday, has clearly opted for fiscal conservatism, ignoring the suggestion that her chief economic adviser, V. Anantha Nageswaran, made in his Economic Survey to “run a marathon as if it were a sprint” while balancing the pressing priorities of maximising domestic growth and creating the buffers to absorb the shocks emanating from a world rocked by geopolitical tensions, trade disruptions, and skittish financial markets.
As a result, Sitharaman stuck to her broader commitment to fiscal rectitude by budgeting to lower fiscal deficit to 4.3% of GDP, or Rs 16.95 trillion in 2026-27, while paring the Centre’s debt-to-GDP ratio to 55.6% from 56.1% in the revised estimates for 2025-26.
Last year, she had indicated that 2026-27 would mark the start of a new fiscal consolidation strategy that would require her to commit to a novel fiscal anchor. The idea was to bring down the Centre’s debt-to-GDP ratio to 50% (plus or minus 1%) by end-March 2031. “The choice of debt to GDP ratio as the fiscal anchor is in line with current global thinking. It encourages shift from rigid annual fiscal targets towards more transparent and operationally flexible fiscal standards,” she had said in the Fiscal Policy Statement, a document that accompanied last year’s budget papers. The shift to a new fiscal anchor will give the government the operational flexibility “to rebuild buffers and provide requisite space for growth-enhancing expenditures”, Sitaraman had added.
That comment had raised the hope that she might jettison the old glide path for fiscal consolidation, thereby creating the headroom for government spending that could ignite growth in an economy that is at great risk of being savaged by external shocks arising from tariff tantrums, global supply chain disruptions and massive fund outflows.
But she chose to stay cautious and trimmed fiscal deficit. The constraint means that total expenditure goes up by a modest 7.7% at Rs 53.47 trillion over the revised estimates for the current year. One reason for this is that gross tax revenue is projected to rise by 8% to a little over Rs 44 trillion — with the Centre’s collections from goods and services taxes actually shrinking by 2.62% from the previous year because of the rationalisation in the rates last September.
The fiscal deficit will be principally funded out of net borrowings of Rs 11.7 trillion, which is going up by just 3.6%. But that does not quite explain why the government is planning to raise a record gross borrowing of Rs 17.2 trillion through bonds, representing a surge of 17.7% over the current year’s Rs 14.6 trillion. The announcement is likely to put pressure on the 10-year bond yield, which could top 7% soon and have a knock-on effect on the cost of credit.
Sitharaman has also sandbagged her fiscal citadel by deciding to drain a staggering Rs 3.16 trillion from the Reserve Bank of India and public sector banks in the form of surplus and dividends — a 23.4% jump over the budget estimate for 2025-26.
There is no relief for the badly-roiled rupee that has fallen by over 5% in 2025 against the US dollar. Industry was hoping to hear about some initiatives that would crank up foreign direct investment with the possible relaxation in the rigours of the Press Note 3 of 2020 that was designed to deter Chinese investment in Indian companies by subjecting these proposals to rigorous vetting.
The market was waiting to hear something about reforms. Besides a few platitudes, Sitharaman had nothing major to reveal. Most of the reforms announced till date are related to processes, procedures and compliance issues. There is no Big Bang reform in the offing. She said high-level committees had been formed and would work with state governments on deregulation and the reduction of onerous compliance requirements.
The government has faced considerable criticism for failing to do much in the past decade to increase employment. Sitharaman’s announcements in her latest budget were painfully modest: a pilot plan to upskill 10,000 guides in 20 iconic tourist hotspots, an initiative to create a pool of 150,000 caregivers, and an additional 100,000 allied health professionals. She also kicked the can down the road by
proposing to create a high-powered committee that will recommend measures to create jobs in the services sector to align with the goal to capture 10% of the global services market by 2047. India’s current share is a little over 4%.
The finance minister has also outlined some initiatives in some sectors like critical minerals, electronics manufacturing, and pharmaceuticals. The government plans to establish new dedicated freight corridors and operationalise 20 national waterways over the next five years. It also announced plans to develop seven high-speed rail corridors to improve connectivity among major cities. There are also plans to establish mega textile parks and three chemical parks on a plug-and-play model.
Many exporters have moaned about the business losses they have suffered because of the trade and tariff disruptions. The government has offered a salve of sorts to export-oriented manufacturing units operating out of special economic zones. As a special, one-time measure, they have been allowed to sell their production in the domestic market at concessional rates of duty.
After last year’s direct tax rejig, there was little expectation of changes this time round. There is a stab at smoothening procedures and penalties for taxpayers who will now be allowed to update returns even after reassessment proceedings have been initiated. But they will have to fork out an additional 10% tax over and above the relevant rate. A framework for immunity from penalty has also been built for those under-reporting income. But the downside is that the taxpayers will need to pay 100% of the tax amount over and above the tax and interest thereon.
The big change for corporates is that the minimum alternate tax is being turned into a final tax with no further credit accumulation after April 1. It will also be restricted to entities that switched to the new tax regime. This tax was introduced by Rajiv Gandhi in the budget of 1986 with the objective of taxing zero-tax companies. The levy was calculated at 15% of book profits. It was soon withdrawn and made a comeback in P. Chidambaram’s budget in 1996 and has been on the statute book ever since. Basically, companies paid MAT in the year when they either didn’t earn profits or where it was smaller than the amount calculated under the MAT formula. The MAT credit can be set off at a later date when the company earns sizable profits. The new rule means that companies will still be able to draw down on their existing credits. But the setoff of MAT credit will be restricted to 25% of the tax liability in the new regime.
Investors have also been hugely disappointed that there are no tax breaks for them in this budget. Instead, the securities transaction tax has been raised on futures and options — which will deter retail investors from entering a game of roulette where the odds are stacked against them. The market watchdog, SEBI, carried out studies that show that over 90% of retail investors lose money in the F&O markets.
Saumitra Dasgupta is a senior journalist who writes on economic issues