financial expresss 16 jan 2026 Budget’s size matter

 

Budget’s size matter

Don’t let public spending suffer; government resources need to grow much faster

India’s fiscal consolidation drive has been sharp and credible

after the short-term counter cyclical measures during the pandemic period. However, this has come with the cost of a subdued growth of general government expenditure + states) as a fraction of GDP. The ratio was 27.4% in FY25, marginally lower than 27.8% in FY17. Turning even further to the past, the ratio improved from 26.6% in FY13 — an 80 basis points increase between FY13 and FY25. Even this modest rise is largely due to the increased expenditure by the state governments, although the combined share of the Centre and the companies owned by it would easily exceed that. What this implies at a broader level is that the ongoing fiscal consolidation is spearheaded by expanding control as much as resource enhancement. While the focus on creating more fiscal space for public capital expenditure by waging war on unfruitful categories of revenue spending is creditworthy, it is clear that productive social infrastructure spending has suffered in the process.

Budget FY27 is going to be presented against the backdrop of a

likely further slippage in the Centre’s total expenditure, from the budgeted 14.2% of GDP in the current fiscal year. With gross tax revenues growing just 3.3% on a year-on-year basis at 12.5% projected for the year as a whole, tax buoyancy in the current fiscal is likely to be much lower than the 1.1x budgeted. This bucks the trend of a steady rise in tax-toGDP ratio since the Covid-induced trough. The fall in tax growth is primarily due to the deep income tax and Goods and Services Tax (GST) cuts. Meeting the fiscal deficit target of 4.4% of GDP for FY26 might therefore require a significant reduction in expenditure compared to the Budget Estimates. In fact, in April–November 2025, the Centre’s revenue expenditure grew at a mean 1.8%.

A positive is that even under constraints, the Centre’s budget capex grew 28.2% in the first eight months of the current fiscal, more than

four times the budgeted pace. This clearly reflects the government’s commitment to maintain the relative quality of spending even amid the resource constraints. States have performed relatively badly on the capex front with just 10% annual increase in April–November. According to Care Edge, states utilised only 38.3% of the budgeted capex amount for the full fiscal year by November end. Accelerated public spending in physical infrastructure and in areas like health, education, and research and development is vital for raising the economy’s growth capacity and sustainable development. A quantum jump in gross capital formation (GCF) in infrastructure is a prerequisite for fruition of the Viksit Bharat plan.

Public spending will have to play a crucial role in the GCF project. Over the next five years, India’s tax-to-GDP ratio must go up at least 5

percentage points from the current level of 18%, which is the lowest among BRICS countries. The size of general government expenditure, net of interest payments, ought to hence rise by a comparable measure. Though additional taxes can’t be an option, a widening of the tax base and concerted focus on collecting the due taxes and using it for productive expenditure is a must. Over ₹16.5 lakh crore of direct taxes are caught in protracted litigation, and a similar sum is to be recovered as indirect taxes as well. That itself is around 60% of the Centre’s current annual Budget size.

 

uncomfortable:

India’s fiscal consolidation has been achieved by shrinking the State, not by strengthening its revenue base.

That is not reform. That is retrenchment disguised as prudence.

•               General government expenditure is 27.4% of GDP in FY25

•               Lower than 27.8% in FY17

•               Only 80 bps higher than FY13

Over 12 years, India’s public spending capacity has barely moved, despite:

Building

The editorial correctly identifies the mechanism:

“Fiscal consolidation is spearheaded by expanding control as much as resource enhancement.” Translation:

The government is balancing books by controlling expenditure, not by growing revenues. What’s gone wrong:

•               “Unproductive” revenue expenditure has been targeted

•               But productive social spending (health, education, research) has been collateral damage

•               The State is becoming leaner, not stronger This is a fundamental policy error. You cannot build:

•               Human capital

•               Innovation capacity

•               Long-term productivity …on a shrinking fiscal base.

 

3.  FY27 Risk — Consolidation Turning Into Contraction The Budget FY27 outlook is bleak, and the numbers are damning. Revenue-side stress:

•               Gross tax revenue growth: 3.3% YoY (Apr–Nov)

•               Projected 12.5% for full year

•               Tax buoyancy likely below 1, against 1.1 budgeted

•               Reversal of the post-Covid tax-to-GDP recovery Cause:

Deep income tax and GST cuts — politically popular, fiscally corrosive.

Expenditure-side response:

•               To meet 4.4% fiscal deficit target, expenditure cuts are inevitable

•               Centre’s revenue expenditure growth: 1.8% (Apr–Nov) That is near-freeze territory in a developing economy.

This is not fiscal discipline. It is growth suppression.

 

4.  Capex — A Bright Spot, but Not Enough

The editorial rightly acknowledges the one area of competence:

•               Centre’s capex up 28.2% in first eight months

•               Four times the budgeted pace This shows intent.

But intent without scale is insufficient. The problem:

•               States’ capex grew only 10%

•               Only 38.3% of budgeted capex utilised by November

•               Weak state capacity is dragging down aggregate investment

Public investment cannot rely on the Centre alone. A lopsided capex push limits multiplier effects.

 

5.  The Structural Constraint — India Is a Low-Tax State With High

Ambitions

This is the editorial’s most important insight:

•               India’s tax-to-GDP ratio: ~18%

•               Lowest among BRICS

•               Advanced economies operate at 25–35% You cannot finance:

•               Universal healthcare

•               Quality education

•               R&D ecosystems

•               Climate adaptation

•               Urban infrastructure …with a thin fiscal spine.

The contradiction is stark:

•               Viksit Bharat rhetoric

•               Developing-country-sized budget Ambition without resources is fantasy.

 

6.  The Real Reform Agenda — Not New Taxes, But State Capacity The editorial is correct to reject crude solutions. What is NOT viable:

•               Higher tax rates

•               New distortionary taxes What IS essential:

1.                    Widening the tax base

2.                    Improving compliance

3.                    Resolving tax litigation The numbers here are devastating:

•               ₹16.5 lakh crore stuck in direct tax litigation

•               Similar amount in indirect taxes

•               Together ≈ 60% of the Centre’s annual Budget This is fiscal incompetence at scale.

A State that cannot collect what it is legally owed cannot claim fiscal restraint as virtue.

 

7.  Why This Matters — Growth Capacity, Not Just Growth Rates The editorial correctly reframes the debate: This is not about:

•               One Budget

•               One fiscal target

•               One deficit number It is about growth capacity.

Without sustained public spending:

•               Gross Capital Formation stagnates

•               Human capital erodes

•               Productivity gains fade

•               Private investment loses direction Public spending is not a substitute for private investment. It is its precondition.

 

8.  The Policy Failure Exposed This piece exposes three deep failures:

  Revenue Myopia

Tax cuts without compensatory base expansion.

  Expenditure Timidity

Fear of spending even where multipliers are highest.

  Institutional Weakness

Inability to resolve litigation and enforce tax law. Fiscal consolidation has become a numbers game, not a development strategy.

 

9.  What Must Change — Immediately

If FY27 is to avoid being a lost opportunity:

1.                    Abandon expenditure compression as the default tool

2.                    Set explicit tax-to-GDP targets over five years

3.                    Fast-track tax dispute resolution mechanisms

4.                    Strengthen state-level capex execution

5.                    Protect social and research spending as non-negotiable Anything less ensures:

•               Slower potential growth

•               Rising inequality

•               Permanent underinvestment in public goods

                                                                                                                                India does not have a spending problem.

Final Verdict                                                                                                             It has a resource mobilisation and institutional capacity problem.

No.	Word	Meaning	Synonyms (4–5)	Antonyms (4–5)	Hindi Meaning	Derived Forms
1	Fiscal consolidation	Reduction of government deficits and debt	budget discipline, fiscal tightening, deficit control, austerity, retrenchment	fiscal expansion, stimulus, deficit spending, profligacy	राजकोषीय समेकन	consolidate, consolidation
2	Countercyclical	Acting against economic cycles	stabilising, corrective, counter-balancing, offsetting	procyclical, amplifying, reinforcing	प्रतिचक्रीय	cycle, cyclical
3	Subdued	Kept low or restrained	muted, restrained, dampened, suppressed, weak	strong, robust, elevated, vigorous	दबा हुआ / मंद	subdue
4	Expenditure	Money spent by the government	spending, outlay, expense, disbursement, allocation	saving, income, revenue, receipt	व्यय	expend
5	Fraction	A part or proportion of a whole	portion, share, segment, ratio, slice	whole, entirety, totality	अंश / भाग	fractional
6	Spearheaded	Led or initiated actively	led, initiated, headed, driven, pioneered	followed, trailed, resisted, opposed	नेित्वृ ककया / अगवाईु की	spearhead
7	Resource enhancement	Increase in available financial resources	augmentation, expansion, strengthening, mobilisation	depletion, erosion, contraction	संसाधन वद्धधृ	enhance, enhancement
8	Fiscal space	Room to increase spending without harming stability	budget flexibility, spending capacity, leeway	constraint, limitation, rigidity	राजकोषीय गंजाइशु	—
9	Creditworthy	Deserving approval or praise	commendable, praiseworthy, laudable, meritorious	blameworthy, questionable, dubious	सराहनीय	creditworthiness
10	Slippage	Failure to meet a planned target	deviation, lapse, shortfall, drift	adherence, compliance, achievement	किसलन / लक्ष्य चकू	slip
11	Tax buoyancy	Responsiveness of tax revenue to GDP growth	elasticity, responsiveness, growth sensitivity	rigidity, stagnation, inelasticity	कर लोच / कर संवेदनशीलिा	buoyant
12	Trough	Lowest point in a cycle	low point, nadir, bottom, dip	peak, crest, high	तनचला स्िर	troughing
13	Fiscal deficit	Gap between government expenditure and revenue	budget deficit, revenue gap, shortfall	surplus, balance	राजकोषीय घाटा	deficit
14	Capex	Capital expenditure on assets	investment spending, infrastructure outlay, asset creation	revenue spending, consumption	पंजीगिू व्यय	capitalise
15	Constraints	Limiting conditions or restrictions	limitations, restrictions, curbs, bounds	freedom, flexibility, latitude	बाधाएँ	constrain
16	Utilised	Put to effective use	used, deployed, employed, expended	wasted, unused, idle	उपयोग ककया	utilisation

The editorial’s title is exact: Budget’s size matters.               Unless the government grows the size and strength of its fiscal base, A small State cannot build a big economy. “Viksit Bharat” will remain a slogan — not a destination. Fiscal discipline without fiscal depth is hollow orthodoxy.                  

17	Accelerated	Increased speed or pace	sped up, fast-tracked, boosted, intensified	slowed, delayed, decelerated	िीव्र ककया	acceleration
18	Prerequisite	Essential prior condition	requirement, necessity, precondition, essential	option, luxury, nonessential	पवाापेक्षाू             / अतनवाया शिा	prerequisite
19	Concerted	Done jointly with focused effort	coordinated, collective, unified, combined	isolated, fragmented, disjointed	समन्ववि / संयक्िु	concert
20	Protracted	Extended for a long time	prolonged, lengthy, drawnout, extended	brief, short, fleeting	लंबा ख चं ा हुआ	protract

FY25 as mentioned in the article?

A.  26.6%

B.  27.0%

C.  27.4%

D.  27.8%

E.  28.2%

2. How does the FY25 expenditure-to-GDP ratio compare with FY17?

A.  Significantly higher

B.  Exactly the same

C.  Marginally lower

D.  Sharply lower

E.  Marginally higher

3. From FY13 to FY25, by how many basis points did the expenditure-to-GDP ratio increase?

A.  40 basis points

B.  60 basis points

C.  70 basis points

D.  80 basis points

E.  100 basis points

4. Which level of government mainly drove the modest rise in expenditure over this period? A. Central government ministries

B.  Public sector enterprises

C.  State governments

D.  Urban local bodies

E.  Defence establishments

5. What broader trend does the article identify behind India’s fiscal consolidation?

A.  Revenue expansion without spending cuts

B.  Expanding control more than resource enhancement

C.  Sharp rise in social sector spending

D.  Aggressive privatisation

E.  Rising defence expenditure

6. Which type of spending is said to have suffered during fiscal consolidation? A. Defence expenditure

B. Interest payments

C.  Productive social infrastructure spending

8. What was the year-on-year growth in gross tax revenues during the current fiscal (April–November)?

A.  2.1%

B.  2.8%

C.  3.3%

D.  4.5%

E.  5.2%

9. Which factor primarily explains the slowdown in tax growth?

A.  Weak corporate profits

B.  Decline in customs duties

C.  Deep income tax and GST cuts

D.  Rising tax evasion

E.  Reduction in excise duties

10. What fiscal deficit target for FY26 does the article mention?

A.  4.0% of GDP

B.  4.2% of GDP

C.  4.4% of GDP

D.  4.6% of GDP

E.  5.0% of GDP

11. How much did the Centre’s capital expenditure grow in the first eight months of the fiscal year?

A.  10.0%

B.  15.5%

C.  20.8%

D.  28.2%

E.  35.0%

12. How did States perform on capital expenditure growth during April–November?

A.  Outperformed the Centre

B.  Matched the Centre’s pace

C.  Recorded about 10% annual growth

D.  Saw a contraction

E.  Achieved over 25% growth

13. According to CareEdge, what proportion of States’ budgeted capex was utilised by November-end?

A.  25.0%

B.  31.4%

C.  38.3%

D.  45.0%

E.  52.6%

14. By how many percentage points must India’s tax-to-GDP ratio rise over the next five years, according to the article?

A.  2 percentage points

B.  3 percentage points

C.  4 percentage points

D.  5 percentage points

E.  6 percentage points

15. What is the combined value of direct and indirect taxes locked in litigation, as highlighted in the article?

A.  About ₹10 lakh crore

B.  About ₹12 lakh crore

C.  About ₹14 lakh crore

D.  About ₹16.5 lakh crore

E.  About ₹33 lakh crore

 

  Answer Key (1×15 Table Format)

Q1

Q2

Q3

Q4

Q5

Q6

Q7

Q8

Q9

Q10

Q11

Q12

Q13

Q14

Q15

C

C

D

C

B

C

C

C

C

C

D

C

C

D

E

 

budget size matter 16-jan-2026 financial express