Budget deficit narrowed
Sitharaman cut her target for the budget deficit for the current fiscal year to 4.9% of gross domestic product from 5.1% previously. She committed to bringing it down to below 4.5% in the next fiscal year and from 2026-27, the government’s goal “will be to keep the fiscal deficit each year such that the central government debt will be on a declining path as percentage of GDP.”
BloombergDefense gets the biggest share of budget
The military typically gets the biggest chunk of India’s budget, largely because of spending on pensions and salaries. In the current fiscal year, the government will spend 6.2 trillion rupees ($74.1 billion) on defense, little changed from last year. Pensions alone will account for 22% of the funding. The capital budget, used for buying new weapons systems, will increase, though.
Spending on education and health will get the lowest share of the budget among major expenditure items, even as Sitharaman vowed to reskill India’s youth to make them fit for jobs in the evolving manufacturing and services sectors.
BloombergSteady decline in subsidies
India is steadily bringing down its spending on subsidies, including on food, despite the Modi government’s pledge to feed over 800 million people free for five years. The government doesn’t provide subsidies for petroleum products anymore, except for cooking gas for those who are eligible. It’s also trying to ramp up production of fertilizers in the country so that farmers can be helped without depending on costly imports.
BloombergInfrastructure remains a priority area
Modi’s ambition is to make India a developed nation by 2047, and improving infrastructure will be key to achieving that goal. Sitharaman pledged to spend 11.1 trillion rupees on infrastructure in the current fiscal year, in line with her February estimate.
She announced a number of incremental measures Tuesday that will in time boost the overall infrastructure in the country. For example, she announced setting up investment-ready “plug and play” industrial parks with complete infrastructure in or near 100 cities across the country, and 12 industrial parks with provisions for dormitories for workers.
“We will endeavor to maintain strong fiscal support for infrastructure over the next five years, in conjunction with imperatives of other priorities and fiscal consolidation,” she said in her speech.
BloombergGovernment will borrow less
The budget documents showed India will boost its total expenditure only slightly from what was announced in the interim budget in February. The government received a major windfall of $25 billion from the central bank this year to boost its coffers, while tax collection has surged on the back of a strong economy. Revenue still isn’t enough to cover total spending, so the government will need to borrow, although slightly less than it expected previously. The gap will be managed through market borrowings, which has reduced in size every year since the economy began recovering from the pandemic.