Realistic and achievable?

The Union Budget 2026–27 outlines a reform-oriented and investment-led growth strategy within a framework of fiscal consolidation. Presented on the auspicious occasion of Magha Purnima and the birth anniversary of Guru Ravidas, the Finance Minister highlighted that this is the first Budget prepared in Kartavya Bhawan and is guided by three foundational Kartavya. The first Kartavya seeks to accelerate and sustain economic growth by enhancing productivity, competitiveness, and building resilience amid a volatile global environment.

The second Kartavya focuses on fulfilling people’s aspirations by strengthening their capacities and enabling them to participate actively in India’s development process. The third Kartavya, aligned with the vision of Sabka Saath, Sabka Vikas, underscores inclusive access to resources, opportunities, and basic amenities across regions, sectors, and social groups. Collectively, these principles reflect the government’s stated commitment to high-growth, inclusive, and resilient economic development. However, while budget speeches articulate policy intent and developmental priorities, the credibility of a budget ultimately hinges on whether its fiscal projections are realistic and achievable in light of historical trends and prevailing macroeconomic conditions.

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This raises a fundamental question: Are the figures presented in the Union Budget 2026–27 grounded in fiscal reality, or do they rest on optimistic assumptions that may not materialise? To examine this issue, trend and variance analyses were conducted using data from 2020-21 to 2025-26. These methods help identify structural patterns in revenue, expenditure, and deficits, and form the basis for deriving realistic projections for the current year. The estimates generated through this empirical exercise are then compared with the figures presented in the Union Budget. Trend analysis shows that the Centre’s net tax revenue (NTR) as a percentage of GDP increased from 6.34 per cent in 2020-21 to 7.94 per cent in 2025-26, with a mean value of 7.95 per cent.

Non-tax revenue, however, fluctuated considerably, ranging from a low of 0.92 per cent in 2020-21 to a high of 1.63 per cent in 2025-26, with a mean value of 1.36 per cent. As a result, total revenue receipts (TRR) averaged 9.43 per cent of GDP during the period, while total capital receipts (TCR) averaged 5.95 per cent. This implies that capital receipts amounted to nearly 63 per cent of total revenue receipts. A closer look reveals that debt receipts consistently accounted for about 93 per cent of total capital receipts, indicating a sustained and heavy reliance on borrowings to finance the capital account of the Union Government.

During the pandemic year 2020-21, debt receipts constituted nearly 60 per cent of total receipts, reflecting extraordinary borrowing in response to the Covid-19 shock. Although this share moderated gradually with revenue recovery, it remained elevated at around 45 per cent in 2024-25 and 2025-26 (Budget Estimates), underscoring the structural nature of borrowing dependence. Interest payments as a proportion of revenue expenditure rose from 26 per cent in 2020-21 to 32 per cent in 2025-26. However, higher incremental growth rate of revenue expenditure compared to that of interest payment is a clear symptom of declining debt servicing capacity (DSC) and interest servicing capacity (ISC).

This masks a deeper concern ~ a steady decline in debt servicing capacity (DSC) and interest servicing capacity (ISC). DSC, which measures the government’s ability to service liabilities from its revenue base, declined from around 40 per cent in 2020-21 to nearly 32 per cent by 2025-26. Similarly, ISC, which reflects the ability to meet interest obligations from interest receipts, also exhibited a declining trend. These indicators point to weakening fiscal resilience. Revenue expenditure averaged about 13 per cent of GDP, while capital expenditure increased from 2 per cent to nearly 4 per cent of GDP, with a mean of 3 per cent.

Although the rise in capital expenditure is a positive structural shift, trend analysis shows that both the fiscal deficit and revenue deficit remained persistently high, averaging around 5.7 per cent and 3 per cent of GDP, respectively. A particularly worrying finding is that the average year-on-year growth rate of GDP has remained lower than the growth rate of total expenditure. When expenditure consistently outpaces income, the gap is inevitably financed through additional borrowing, increasing fiscal vulnerability and potentially impairing economic sovereignty. This is an alarming situation. Variance analysis presents a mixed picture. Revenue receipts exhibit a favourable variance, indicating improved tax mobilisation.

Capital receipts, however, show an adverse variance due to shortfalls in non-debt capital receipts, further reinforcing reliance on borrowings. On the expenditure side, total expenditure records an adverse variance, largely driven by higher revenue expenditure, especially interest payments and other committed liabilities. Another area of concern is the Centre’s efficiency in collecting interest on loans extended. The Efficiency Index for Interest Collection (EIIC) – measured as interest received as a percentage of the average outstanding loan stock – has shown a declining trend over the past five years, pointing to weakening recovery performance. Based on empirical trends, the projections for key components of the Union Budget 2026–27 differ significantly from realistic estimates derived through trend analysis.

This assessment is based on a more conservative and realistic assumption of around 7 per cent GDP growth, in contrast to the approximately 10 per cent nominal GDP growth implicitly assumed in the Union Budget 2026–27. Given this divergence, both the revenue deficit and fiscal deficit are likely to exceed the levels projected in the Budget. Financing these higher deficits would require either increased market borrowings or expenditure compression in critical sectors such as education, health, infrastructure, and agriculture ~ each carrying adverse long-term consequences. To conclude, macroeconomic analysis indicates that the Government of India continues to operate under significant fiscal constraints, with borrowing remaining an important component of public finance. Persistently high fiscal and revenue deficits, along with pressures on debt and interest servicing capacities, underline the challenges of maintaining long-term fiscal sustainability.

These risks, if left unaddressed, could potentially heighten inflationary pressures and fiscal vulnerability. At the same time, the Union Budget 2026–27 represents a conscious and calibrated attempt to address these concerns. The Budget signals a renewed commitment to fiscal consolidation and expenditure rationalisation, while preserving the growth impulse through a sustained emphasis on capital formation. Structural measures such as the proposed new Income Tax Act aimed at simplifying compliance, the expansion of high-value manufacturing initiatives including Biopharma SHAKTI and India Semiconductor Mission 2.0, enhanced support for MSMEs, and increased investment in high-speed rail and national waterways are expected to strengthen productive capacity, crowd in private investment, and gradually broaden the tax base.

Higher allocations for healthcare and agriculture further reflect an effort to balance growth objectives with inclusivity and social resilience. Given that many of these initiatives are structural in nature and yield returns over the medium to long term, their full macroeconomic impact will unfold gradually. If effectively implemented, they have the potential to raise productivity, support sustained GDP growth, and improve the Centre’s fiscal capacity over time. In this context, while the fiscal projections of the Union Budget 2026-27 may appear ambitious in the near term, the policy direction embedded in the Budget provides a credible pathway towards strengthening macroeconomic fundamentals and mitigating longer-term fiscal risks.

(The writers are, respectively, Director & CEO, and Research Associate at Sayantan Consultants Pvt. Ltd., Kolkata)