27. Public Finance: Union Budget, Revenue/Expenditure, Deficit, Public Debt, Fiscal Policy, Finance Commission

CORE Key Points at a Glance

1. 1

   Union Budget 2025-26

   • Presented on 1 February 2025
   • Total expenditure: ₹50.65 lakh crore
   • Total receipts: ₹34.96 lakh crore (excluding borrowings)
   • Fiscal deficit: ₹15.69 lakh crore (4.4% of GDP)
2. 2

   Revenue Receipts

   • Include tax revenue: income tax, GST, customs, excise
   • Include non-tax revenue: dividends, interest, fees
   • Total revenue receipts (2025-26 BE): ₹34.20 lakh crore
   • Gross tax revenue: ₹42.70 lakh crore after transfers to states
3. 3

   Revenue Expenditure vs Capital Expenditure

   • Revenue expenditure (salaries, interest, subsidies, pensions) creates no assets: ₹37.09 lakh crore (2025-26)
   • Capital expenditure (infrastructure, loans to states) creates assets: ₹11.21 lakh crore (3.1% of GDP)
   • Continued high capex thrust reflects investment-led growth strategy
4. 4

   Four Types of Deficit

   • (a) Revenue Deficit = Revenue Expenditure − Revenue Receipts
   • (b) Fiscal Deficit = Total Expenditure − Total Receipts (excluding borrowings) — most comprehensive measure
   • (c) Primary Deficit = Fiscal Deficit − Interest Payments
   • (d) Effective Revenue Deficit = Revenue Deficit − Grants for capital assets
5. 5

   Fiscal Consolidation Path

   • Target: 4.4% of GDP (2025-26), then 4.1% (2026-27)
   • Budget 2024-25 actual fiscal deficit was 4.9% of GDP
   • FRBM Act 2003 original statutory target was 3% of GDP
   • Medium-term path aims to stay below 4.5%
6. 6

   Public Debt

   • Total public debt (FY2023-24): approximately ₹172 lakh crore (84.5% of GDP)
   • Internal debt: market borrowings, small savings, provident funds
   • External debt: multilateral loans, bilateral loans, NRI bonds
   • High domestic savings rate makes this level considered manageable
7. 7

   Finance Commission (Art. 280)

   • Constitutional body appointed every 5 years
   • Recommends distribution of tax revenues between Centre and States
   • Also recommends grants-in-aid to states
   • 16th Finance Commission submitted its report in November 2025; award period 2026-31; 41% vertical devolution retained
8. 8

   15th Finance Commission

   • Period 2020-25, chaired by N.K. Singh
   • Recommended 41% devolution from divisible pool (14th FC was 42%, minus 1% for J&K-Ladakh reorganisation)
   • Introduced performance-based grants linked to states' own-tax effort
   • Also linked grants to health expenditure and nutrition outcomes
9. 9

   FRBM Act 2003

   • Full name: Fiscal Responsibility and Budget Management Act
   • Mandates elimination of Revenue Deficit and capping of Fiscal Deficit
   • NK Singh Committee (2017): recommended replacing fixed target with a range (1.7–3.5% fiscal deficit)
   • Escape Clause: allows exceeding targets by 0.5% during national calamity, security threats, or structural reforms
10. 10

    Fiscal Policy Tools

    • Expansionary: tax cuts + higher spending during recession
    • Contractionary: tax hike + spending cuts during inflation
    • India used expansionary policy post-COVID-19 with record capex and PLI schemes
    • Budget 2025-26 signals contractionary consolidation: deficit reduced from 9.2% (2020-21) to 4.4%
11. 11

    GST — the Biggest Tax Reform

    • Implemented from 1 July 2017, subsuming 17 central and state indirect taxes
    • GST collections crossed ₹2.10 lakh crore in April 2024 (highest monthly collection ever)
    • Average monthly GST for 2024-25: ₹1.82 lakh crore
12. 12

    Capital Expenditure Multiplier

    • Capex has a fiscal multiplier of 2.5–3x — ₹1 of government capital spending generates ₹2.5–3 of economic activity
    • India's capex grew from ₹5.54 lakh crore (2022-23) to ₹11.21 lakh crore (2025-26 BE)
    • Near doubling in three years underscores the infrastructure-first growth strategy