India’s budget does well to drive growth despite a fiscal pullback

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Subscribe to enjoy similar stories. The Union budget was presented on Saturday in the backdrop of sluggish real growth and stubborn albeit declining headline inflation with the latest print above 5%. Real growth was at 6% in the first half of the current year (2024-25), as against 8.2% in the same period last year.

A satellite concern of long standing is jobs and livelihoods. But high frequency indicators suggest that the second half of the year might show higher real growth. For the upcoming budget year, nominal gross domestic product (GDP) has been projected to grow at 10.1% over the half year-based First Advance Estimate (FAE) for the current year, yielding a budgeted GDP denominator of ₹356.97 trillion for 2025-26.

The Second Advance Estimate (SAE) for 2024-25 will soon follow at February-end, and at May-end the provisional estimate based on all four quarters. Given the shifting denominator, it is best to look at absolute figures alongside percentages. The current year’s fiscal deficit budgeted at ₹16.13 trillion was 4.9% of the July budget GDP estimate.

The latest revised fiscal deficit is lower at ₹15.70 trillion, amounting to 4.8% of GDP by the FAE (which is lower than the July GDP estimate). For the next year 2025-26, the fiscal deficit is held at the same absolute level as the revised fiscal deficit in the current year, amounting to 4.4% of (the projected) GDP. This is an impressive display of fiscal consolidation, although as I have frequently said, these surface figures can cover poor fiscal practices, like axing some budgeted expenditures or delaying payments to traders for goods and services delivered.