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India’s Economic Survey 2025–26, Chapter 2—“Fiscal Developments: Anchoring Stability Through Credible Consolidation”—presents a decisive shift in the country’s macro-fiscal architecture. At a time when global economies are battling fiscal profligacy, debt overhang, and costly geopolitical uncertainty, India’s strategy seeks to build a new fiscal compact driven by credibility, transparency, and high-quality expenditure.

The  survey offers a mix of optimism and caution. While India’s fiscal metrics have improved markedly since the pandemic, the next decade demands a redesign of the fiscal playbook—balancing consolidation with growth impulses, ensuring tax buoyancy without burdening households, and strengthening the Centre–State fiscal contract.

Revenue Transformation: What the Numbers Really Signal

India’s revenue performance in FY25 and FY26 signals a structural, not cyclical, shift. Revenue receipts touching 9.2% of GDP mark a multi-year high, driven overwhelmingly by direct tax buoyancy and the deepening of formalization.

The Survey notes a pivotal change:
Income tax return filers increased from 6.9 crore in FY22 to 9.2 crore in FY25.
This expansion of the tax base reflects rising incomes at the bottom and middle segments, a trend often overshadowed by headline growth numbers.

The GST system has also matured significantly. Collections of
₹17.4 lakh crore between April–December 2025 (6.7% YoY growth)
indicate stabilizing compliance behaviour and a widening supply chain footprint. The system, despite frequent debates on rate rationalization, has now become a central pillar of India’s fiscal stability.

Historical Perspective:
Compared to the indirect tax volatility of the 1990s and the fragmented, cascading tax structure of the early 2000s, the GST era marks a long-term consolidation of India’s fiscal federalism. Survey situates GST not just as a revenue engine but as an institutional reform whose dividends will deepen through digital audit trails and AI-driven compliance.

Expenditure Priorities: When Capex Becomes the Core

Perhaps the most striking figure in the Survey is the rise of effective capital expenditure to 4% of GDP in FY25—a historic high. This shift from consumption-based spending to asset creation marks a strategic reorientation of India’s growth model.

Capital expenditure has become the main driver of India’s economic momentum, compensating for uneven private investment cycles and external headwinds. Infrastructure, green mobility, and logistics networks dominate this spending push.

The Survey positions capex as a counter-cyclical tool: even in a world where fragmented value chains and geopolitical rivalries push countries toward protectionism, India is opting to build long-term competitiveness through public investment.

The challenge will emerge in FY27–FY30 as interest payments rise and fiscal space narrows. India must avoid past patterns—such as post-2008—where consolidation was derailed by populist expenditure.

Debt Consolidation: A Delicate Balancing Act

Survey underscores a remarkable fiscal correction:
General government debt-to-GDP has fallen by 7.1 percentage points since 2020.

This is presented as a testament to fiscal discipline during a period when many advanced economies accumulated large debt piles due to pandemic spillovers and energy shocks.

However, the Survey subtly warns that the decline in the debt ratio is partly growth-led. For sustainable consolidation, India must anchor debt through predictable fiscal policy, medium-term budgeting frameworks, and tighter intergovernmental fiscal rules.

Futuristic Outlook:
The next frontier of debt management lies in:

shifting to long-tenor green bonds,

increasing retail participation in government securities,

leveraging blockchain-based public debt registries, and

adopting AI-led expenditure audits to plug leakages.

Fiscal Deficit Targets: Consolidation Without Cold-Turkey Austerity

India’s projected fiscal deficit of 4.8% in FY25 and a recommended glide to 4.4% in FY26 reflects a calibrated approach—neither expansionary nor austerity-driven.

SURVEY recommends sustaining consolidation by:

strengthening tax buoyancy via digital compliance,

prioritizing capex over subsidies,

rationalizing revenue expenditures, and

coordinating fiscal paths across states.


The Survey notes that credible consolidation, not abrupt cuts, is essential to anchor inflation expectations, attract long-term investment, and protect India’s sovereign rating profile.

Reflection:
While the glide path is sensible, India must guard against the fiscal illusion created by off-budget borrowings at state levels and rising contingent liabilities in public sector enterprises.

States and the Federal Fiscal Compact

Tables 2.5 and 2.7 in the Survey detail the evolving liabilities of states and the consolidated general government. States’ fiscal health is increasingly central to India’s macro stability, especially as they assume larger responsibilities in urbanization, health, and climate action.

Key risks identified include:

rising pension burdens,

declining share of manufacturing-linked revenue,

uneven GST compensation trajectories,

growing debt by state PSUs.


Futuristic Reform Path:
India must move toward a Fiscal Responsibility and Budget Management (FRBM) 2.0, incorporating:

unified Centre–State debt ceilings,

fiscal “stress tests” for states,

dynamic spending caps linked to GDP cycles,

outcome-linked transfers for capex-heavy states.

Rewriting the Fiscal Playbook

Chapter 2 frames policy priorities without aggressive new schemes, preferring structural strengthening:

1. Sustain Fiscal Deficit Reduction

Target 4.4% in FY26 while safeguarding high-quality capex.

2. Deepen Revenue Compliance

Use digital platforms to widen the tax net rather than raising tax rates.

3. Consolidate Debt Metrics

Align central and state fiscal paths to maintain a declining debt trajectory.

4. Formalization as a Fiscal Strategy

Expand income tax base, e-Shram enrolment, and MSME digital footprints to reduce revenue volatility.

5. Enhance Transparency

Adopt multi-year budgeting and improve reporting on contingent liabilities.

A Futuristic and Critical Outlook: India’s Fiscal Future in a Tectonic Global Economy

India stands at a fiscal inflection point. The world is entering an era of:

higher interest rates,

re-shoring and friend-shoring pressures,

climate-transition spending,

slowing global trade,

and heightened geopolitical risk.

India’s future fiscal strength must come from credibility, not comfort. The next decade will test India’s ability to:

balance welfare with growth,

build infrastructure without debt traps,

expand the tax base without hurting consumption,

and manage Centre–State fiscal asymmetries.

If India successfully maintains credible consolidation while sustaining high-growth investments, it could emerge as one of the world’s most fiscally resilient large economies by 2030.

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