Union Budget 2026-2027 underlines the importance of fiscal discipline, again – India Legal

By Bishwajit Bhattacharyya

The Union Funds 2026-2027 (Union Authorities’s estimated receipts and expenditure from 1.4.2026 to 31.3.2027) has been offered in Parliament as we speak by Union Finance Minister Nirmala Sitharaman.

Estimated receipts of Rs 36.51 trillion fall wanting estimated expenditure of Rs 53.47 trillion, by Rs 16.96 trillion, which displays a fiscal deficit of 4.3 p.c of budgeted GDP of Rs 393 trillion.

The price range estimates of fiscal deficits within the earlier 5 years, from 2021 to 2025, have been 6.5%, 6.4%, 5.9%, 4.9% and 4.4% respectively; thus, the fiscal trajectory has been on the right path, although the tempo has been slightly sluggish. Fiscal deficit should be curtailed to 2.5% of GDP subsequent yr. That is achievable and requires financial savings/era of further Rs 7 trillion, by sustaining strict fiscal self-discipline.

Fiscal self-discipline entails overhauling the income gathering equipment and curbing a bloated  institution expenditure of the Union Authorities (Rs 8.24 trillion). This needs to be authorities’s precedence primary!

Gross tax income is budgeted at Rs 44.04 trillion; out of this, direct tax is Rs 26.97 trillion and oblique tax is Rs 17.07 trillion. Out of direct tax of Rs 26.97 trillion, people contribute Rs 14.66 trillion and corporates Rs 12.31 trillion. Out of oblique tax Rs 17.07 trillion, GST is Rs 10.19 trillion, Union Excise responsibility is Rs 3.89 trillion and Customs responsibility is Rs 2.71 trillion, plus further misc Rs 0.28 trillion.

It’s observed that income-tax to corporate-tax ratio is: 1.19 : 1. This implies people pay extra direct taxes than corporates. That is inequitable; people should not be burdened to subsidise direct taxes to corporates!

It’s commendable, nevertheless, that direct taxes (Rs 26.97 trillion) are outgrowing oblique taxes (Rs 17.07 trillion). Oblique taxes trigger inflation. Price of oblique taxes might, subsequently, be decreased; correspondingly, charge of company taxes could also be elevated. This train could be income impartial, whereas arresting inflation.

From gross tax income collected by Union Authorities, a slice is required to be distributed to the States; that is mandated by Article 270 of the Structure. The budgeted quantity of Rs 15.26 trillion of tax income to be transferred to the States is affordable. Tax income distributed to States in earlier 5 years from, 2021 to 2025, have been Rs 6.65, 8.16, 10.21, 12.47 and 14.22 trillion respectively.

These figures point out that the Finance Fee has been discharging its constitutional obligation moderately nicely. Nonetheless, cesses and surcharges should be introduced into the divisible pool to spice up federalism.

Non-tax income budgeted at Rs 6.66 trillion appears optimistic. These figures in final 5 years, from 2021 to 2025, have been Rs 2.43, 2.69, 3.02, 5.45, and 5.83 trillion respectively. The principle sources of non-tax income are dividends and income from Public Sector Undertakings. Focus needs to be directed to manage PSUs professionally with robust accountability. Relatively than mopping up one time income from disinvestment, strengthening PSUs is a much better choice. And relying on dividend from RBI to curtail income shortfall is retrograde.

On the expenditure facet, the whole quantity budgeted is Rs 53.47 trillion. Authorities plans to borrow a hefty sum (32% of budgeted expenditure) to bridge income shortfall. Amid fiscal pressure, Authorities’s propensity to borrow is undesirable.

Authorities’s burgeoning curiosity legal responsibility is disconcerting; the curiosity burden has grown from Rs 8.09 trillion in 2021 to Rs 14.04 trillion in 2026, reflecting a rise of 74%. Curiosity burden alone wipes out company taxes! That is alarming!

The straightforward choice to borrow and distribute borrowed funds should halt! Ought to we inundate our subsequent era with money owed?

Spectacular numbers of GDP and development lose which means if we’re fiscally imprudent! We should recognise {that a} fiscally wholesome India alone can develop into an excellent energy! We’d like not wait until 2047! Now we have one of the best human assets. We solely must implement fiscal self-discipline doggedly. We’re failing on this space.

Fiscal Accountability and Funds Administration (FRBM) Act, 2003 was enacted by the Parliament 23 years in the past; the target was to institutionalise fiscal self-discipline. However what occurred to this legislation? It has been breached systematically! And the breaches are being regularised yr after yr!

Charity begins at residence. Union Authorities should curtail its large institution expenditure of (Rs 8.24 trillion). Institution expenditure now exceeds India’s defence expenditure by 39%! Will or not it’s possible to hive off part of the institution and relocating it to Defence? It will trim the institution and add heft to our defence.

Defence expenditure must be enhanced in view of our hostile neighbours and vitiated geo-political setting. The proposed expenditure of Rs 5.94 trillion appears insufficient. This should be elevated by at the least Rs 2 trillion.

Subsidies have been budgeted at Rs 4.10 trillion; the parts of subsidy are: meals, fertiliser and petroleum amounting to Rs 2.27 trillion, Rs 1.70 trillion and Rs 12,085 crore respectively. Petroleum subsidy should be enhanced significantly.

Grants in Assist for creation of Capital Belongings of Union Authorities of Rs 4.92 trillion appear ample. Expenditure on capital account is Rs 12.22 trillion is ample. Efficient capital expenditure is thus Rs 17.14 trillion, which, paradoxically, is the approximate quantity of fiscal deficit (Rs 16.96 trillion).

Pension, budgeted at Rs 2.96 trillion, is a big enhance from Rs 2.76 trillion final yr. Pension can not probably be decreased, however some restraint should be exercised. This requires cautious dealing with because the Supreme Court docket has dominated that pension shouldn’t be a bounty however a proper.

General, bills for Non-Growth 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