Questions, therefore, will arise when you take a close look at the composition of the government’s receipts and expenditure in 2025-26. Barring a few sectors like defence, railways and roads, the government has been unable to spend a large chunk of the budgeted outlay during the current year. The shortfalls, ranging between 100 per cent and 25 per cent, are disturbing, particularly when the impacted sectors include health infrastructure, urban and rural housing, irrigation, interlinking of rivers, drinking water mission, rural roads, rural livelihood schemes, nuclear power projects, telecom infrastructure, artificial intelligence mission, semiconductor development project, production-linked incentive schemes, investment and infrastructure fund, research, development and innovation scheme, and emergency credit lines for micro, small and medium enterprises.
Meeting the fiscal deficit target is always desirable. But this year, the squeeze on expenditure on many important schemes and sectors raises the question of whether the schemes were properly designed and, if yes, why the government failed to spend the money allocated for projects considered critical for India’s economic development. At the end of December 2025, an estimated ₹69,000 crore was lying unused with the states under 53 schemes, with a total outlay of ₹5 trillion. The outlay for these schemes under RE for 2025-26 has been slashed by over 25 per cent to ₹3.76 trillion. Non-utilisation of funds by states under such schemes could be one of the reasons for the shortfall in spending under them. But surely a more detailed assessment is called for to ensure that schemes are not announced and financial allocations made in the Budget just to make them look good on paper, without actually making a difference on the ground.
On the receipts side, the sources of the rise in non-tax revenue need to be examined closely to ensure that such gains become sustainable. About 45 per cent of the government’s total non-tax revenues is accounted for by a single item — dividends from the RBI and state-owned banks. The 14.57 per cent rise in non-tax revenues in the RE for 2025-26 over the BE number of ₹5.83 trillion is largely accounted for by a sharp rise in the financial sector’s surplus transfer, which rose by 19 per cent over what was budgeted. Rising dependence on non-tax revenues to bolster the government’s gross receipts is a healthy trend, but the rise cannot be dependent only on one sector or the RBI or a few state-owned banks. Non-tax revenues should be rising across all the various sources of fees and income from various government services and non-financial sector state-owned enterprises.
How do the fiscal numbers for 2026-27 look? Gross tax revenue numbers for the coming year appear to be conservative, if one takes into account the government’s estimates of the economy’s nominal growth, pegged at 10 per cent. At 8 per cent nominal growth in 2025-26, the government’s gross tax collections grew by 7.46 per cent or stayed at 11.4 per cent of GDP. With a 10 per cent nominal growth projection for 2026-27, the government hopes to achieve a gross tax collections growth of less than 8 per cent, which will be lower, at 11.2 per cent of GDP. The revenue assumptions appear to be realistic. Or have they taken cognisance of the likely disruptions or growth deceleration that might hit the Indian economy in the coming year?
Quite understandably, the government expects excise to grow by about 16 per cent in 2026-27, banking perhaps on the sharp rise in cigarette taxes that kicked in from February 1 and on the possibility of a rise in taxes on petroleum products. Customs revenue growth is projected at 5 per cent, almost half of the growth seen in 2025-26. This reflects the rationalisation of Customs duty rates on many items, although the number of items whose import duty has come down is smaller than those announced in the last Budget. The worrying trend from the revenue projections for the coming year is in the collections of goods and services tax (GST), which according to the Budget will see a further contraction of 2.58 per cent over a fall of 1.32 per cent recorded in 2025-26. GST rationalisation in September 2025 appears to have not yet seen the much-needed buoyancy that was expected, even as personal income-tax collections, after growing by 10.9 per cent in 2025-26, are projected to grow by close to 11.74 per cent.
On the non-tax revenues front, the government appears to be less dependent on the RBI or the public-sector banks for dividends to boost its receipts. Indeed, its non-tax revenues in 2026-27 will remain virtually unchanged, even though marginal increases in RBI dividends have been projected. But achieving a big increase in disinvestment or asset monetisation at ₹80,000 crore in 2026-27 will be dependent on how well the government plans its asset sales strategy and manages the political pushback against as aggressive a strategy as the numbers suggest. The capital expenditure projection for 2026-27 also remains realistic. After seeing its lowest growth since Covid in 2025-26 at 4.2 per cent, it is expected to bounce back with an 11.5 per cent rise in 2026-27, but this increase is helped by a rising share of state loans, estimated at 15 per cent.
Could the finance minister have projected a lower fiscal deficit or debt level for 2026-27? With a projected reduction from 4.4 per cent of GDP in 2025-26 to 4.3 per cent of GDP in 2026-27, this will be Ms Sitharaman’s slowest fiscal consolidation in a year since Covid. Similarly, at 55.6 per cent of GDP, the debt anchor is moving down only by 0.5 percentage point in a year, even though the target four years from now is 49 to 51 per cent. The idea of back-loading the target of fiscal consolidation is perhaps guided by the government’s desire to be prepared for any adverse developments in the coming year. But as a result, the task of fiscal consolidation in the following four years will become a little onerous.
Fiscal numbers apart, the Budget 2026 has largely eschewed political populism, even as several states are to go for Assembly elections in the coming months. There is a good dose of measures to address the concerns of the aspirational middle classes in India through a tax immunity scheme and by allowing non-Indian-origin individuals living abroad greater access to equity investment in Indian companies. But the spirit of the Economic Survey, presented on January 29, is difficult to miss in this Budget — be it the focus on the services sector, the manufacturing sector’s competitiveness, or a big push to disinvestment through a legislative change. The Budget has the numbers on disinvestment, the legal changes may come later!
 "Budget 2026")