Context:
The FY27 Union Budget, to be presented on February 1, is expected to focus on government spending quality, taxation reforms, and infrastructure expansion amid relatively stable macroeconomic conditions.
Key Highlights:
- Fiscal Overview
- FY26 Budget size: ₹50.65 lakh crore.
- Capex target (2025–26): ₹11.21 lakh crore (over 3× 2019–20 levels).
- Direct tax-to-GDP ratio: 7.6%.
- Spending Trends
- Improved quality of expenditure over 25 years.
- Greater fiscal transfers to States.
- India’s public expenditure ~30% of GDP (lower than Brazil, South Africa, China).
- Tax Base Issues
- ~80 million tax filers (AY24).
- Majority are zero-income filers.
- Non-zero income filers doubled in five years.
- Despite high marginal tax rates, small effective tax base limits revenue buoyancy.
- Infrastructure Expansion Phase
- Entering new expansive phase of infrastructure growth.
- Improved resource mobilization and execution capacity.
Relevant Prelims Points:
- Fiscal Policy: Use of taxation and expenditure to manage economy.
- Capital Expenditure (Capex): Spending on asset creation (roads, railways, power plants).
- Revenue Expenditure: Spending on salaries, subsidies, interest payments.
- Tax-to-GDP Ratio: Indicator of tax collection efficiency.
- Union Budget presented under Article 112 of the Constitution.
Relevant Mains Points:
GS Paper 3 – Economy
- Capex-led growth strategy → Multiplier effect on private investment.
- Infrastructure push enhances productivity and logistics efficiency.
- Need to balance fiscal consolidation with growth stimulus.
- Low direct tax-to-GDP ratio indicates:
- Narrow tax base
- High informality
- Compliance gaps
GS Paper 2 – Governance
- Strengthening fiscal federalism via transfers to States.
- Need for rationalizing subsidies while protecting vulnerable groups.
Policy Challenges
- Expanding tax base without overburdening middle class.
- Ensuring capex efficiency and timely execution.
- Maintaining fiscal deficit targets amid global uncertainties.
Way Forward:
- Broaden tax base via formalization and digital compliance.
- Continue capex prioritization with outcome monitoring.
- Enhance public-private partnerships (PPP).
- Gradual fiscal consolidation aligned with growth recovery.
UPSC Relevance:
- Fiscal Policy & Budgetary Process
• Capital Expenditure-led Growth
• Tax Reforms & Formalization
• Infrastructure Development Strategy