India before FY27 Union Budget, Pg11

Key Highlights:

• Finance Minister Nirmala Sitharaman will present the FY27 Union Budget on February 1.
• The 2025-26 Union Budget was Rs 50.65 lakh crore.
• India's direct tax-to-GDP ratio is at 7.6%.
• The government's capex target for 2025-26 is set at Rs 11.21 lakh crore, over 3 times the spending in 2019-20.

Detailed Insights:

• The quality of government spending has improved significantly in the last 25 years, coinciding with greater money being transferred to states.
• India spends around 30% of GDP, which is in line with some Emerging Market peers but lower than South Africa, Brazil, and China.
• India's direct tax-to-GDP ratio is low compared to EM and DM peers, despite high marginal Income Tax and corporate tax rates due to a small tax base.
• Approximately 80 million people filed taxes in AY24, but the majority remain zero income filers, though non-zero income tax filers have doubled over the last five years.
• India is entering a new expansive phase of infrastructure development with improved resource availability, spending ability, and execution.

Key Concepts Involved:

• Fiscal Policy: Government use of spending and taxation to influence the economy.
• Capital Expenditure (Capex): Funds used by a company to acquire or upgrade physical assets.
• Tax-to-GDP Ratio: The ratio of a nation's tax revenue compared to its gross domestic product (GDP).