03 February 2025 : Indian Express Editorial Analysis

1. Navigating uncertainty

(Source – Indian Express, Section – The Ideas Page – Page No. – 13)

Analysis of the news:

India’s Economic Slowdown and the Need for Fiscal Calibration

• India’s post-Covid recovery was commendable, yet recent quarterly GDP numbers indicate a slowdown requiring fiscal adjustments.
• The Union Budget for 2025-26 was presented against a backdrop of declining economic growth, lower savings rates, slower corporate earnings, and rising household debt.
• The budget sought to strike a balance between fiscal expansion and consolidation while initiating reforms in key areas such as taxation, urban development, mining, the financial sector, power, and regulatory frameworks.
• This balance is critical to fostering an upturn in economic growth while ensuring fiscal and macroeconomic stability.

Fiscal Consolidation and Tax Reforms

• The government has remained committed to fiscal consolidation under the fiscal responsibility framework.
• The fiscal deficit for 2025-26 is estimated at 4.4% of GDP, reflecting disciplined financial planning.
• On the revenue front, significant tax-related announcements were made, particularly in direct taxation and customs duty rationalization.
• The upward revision of income tax slabs aims to provide relief to the middle class and encourage disposable income.
• Simplifying the tax structure is expected to ease compliance and broaden the tax base, ultimately making the direct tax system more efficient.
• Despite these efforts, fiscal consolidation measures remain in continuity with past policies, and additional proactive interventions beyond the budget might be needed to sustain growth.

Need for Structural Reforms and Centre-State Coordination

• While the budget focuses on stability, India’s economic trajectory suggests the necessity of bold reforms beyond fiscal measures.
• The Economic Survey emphasized deregulation across various economic sectors, many of which fall under state jurisdiction.
• Therefore, effective Centre-State coordination is essential for implementing second-generation reforms.
• A structured, consultative framework involving all stakeholders will be crucial in advancing these reforms.
• Since such measures cannot be embedded within the budget alone, a trust-based mechanism between the Centre and states will be key to ensuring their smooth implementation.

Fiscal Expansion and Its Limited Impact

• The budget outlined its objectives: accelerating growth, securing inclusive development, boosting private investment, uplifting household sentiments, and enhancing middle-class purchasing power.
• To achieve these goals, two forms of fiscal expansion were introduced—first, tax relief through revised slabs to increase disposable income, and second, targeted spending to aid lower-income groups.
• However, the overall impact of these measures remains marginal, as the budget maintains a fiscal deficit of 4.4% of GDP and projects a decline in expenditure to 14.6% in 2025-26.
• The nominal GDP growth assumption of 10.1% for 2025-26 suggests an expectation of controlled inflation at 4% or lower.
• Given the current inflationary pressures, achieving this target will be challenging but crucial for fiscal prudence.

Household Debt and the Risks of Financialisation

• One of the major concerns for the upcoming fiscal year is the rising household debt.
• India has yet to return to its pre-Covid household debt-to-GDP ratio, and the trend of increasing debt has continued post-pandemic.
• Although India’s household debt ratio remains lower than that of developed economies, it needs careful monitoring.
• The decline in savings rates, coupled with the shift of safe savings into speculative assets like stocks, poses macroeconomic risks.
• This financialisation trend, flagged in the Economic Survey 2024-25, underscores the need for policy interventions that encourage stable savings mechanisms.
• Rising personal loans indicate financial stress among households, which calls for broader fiscal, monetary, and financial-sector policies beyond the budget.
• Policies that promote household savings, reduce excessive financial speculation, and provide secure investment options will be critical for ensuring financial stability in an uncertain global environment.

Conclusion

• India’s 2025-26 Union Budget aims to balance fiscal consolidation with growth-supportive measures, yet its impact remains limited amid slowing economic momentum.
• While tax relief and expenditure adjustments provide some support, deeper structural reforms and Centre-State coordination are crucial for sustained growth.
• Additionally, rising household debt and financialisation trends require proactive policy interventions beyond the budget to ensure long-term financial stability and macroeconomic resilience.