Budget's consumption bet: Tax cuts boost demand, capex lag poses risks

The Union Budget for 2025-26 provides much-needed personal income tax relief to boost private consumption while maintaining fiscal discipline. This augurs well for macroeconomic stability and improved fiscal-monetary policy coordination at this critical juncture when the economy is slowing down.

 

The gross fiscal deficit (GFD) target for 2025-26 has been budgeted at 4.4 per cent, a tad better than the 4.5 per cent target set out in 2021.  The Budget has now indicated a shift towards using the debt-gross domestic product (GDP) ratio as a fiscal anchor.   The Statement of Fiscal Policy indicates the government’s commitment to keeping the fiscal