This year, we also have two critical data announcements—a complete overhaul of the Consumer Price Index (CPI) and gross domestic product (GDP) series.
Set against a volatile global backdrop and major data revisions, the Union Budget charts a path of fiscal discipline and targeted growth.
By Dharmakirti Joshi & Pankhuri Tandon
A march of announcements generally makes February policy-heavy. The Union Budget and monetary policy review rub elbows within a week of each other, on a stage first occupied by the Economic Survey. This year, we also have two critical data announcements—a complete overhaul of the Consumer Price Index (CPI) and gross domestic product (GDP) series. The revisions involve rebasing the data to a more recent year, adopting new methodologies, and incorporating fresh data sets. Such changes can alter the measured size of the economy, its growth speed, and inflation numbers. Hence, the Budget should be assessed keeping in mind these forthcoming developments.
This fiscal’s budget was framed under an unusual mix of circumstances: India’s standout growth performance amid a challenging global environment marked by heightened uncertainty and risks stemming from tariff disputes and geopolitical conundrums. Against this milieu, growth was supported by directed fiscal measures and monetary easing. While real GDP growth remains strong, nominal growth—crucial for tax collections and corporate performance—is estimated to be 210 basis points (bps) below the budgetary target of 10.1 % for the fiscal. Nevertheless, the government managed the trade-offs well and achieved the fiscal deficit target set out in the Budget.
Fiscal marksmanship has been a hallmark of the government’s budgeting, with the pandemic year as the sole exception. In the post-pandemic period, the government engineered a sustained reduction in fiscal deficit in line with its guidance. The latest Budget targets a fiscal deficit of 4.3% of GDP and assumes 10% nominal GDP growth for the coming fiscal—higher than the 8% estimated for the current fiscal. Higher nominal growth expands the tax base and should improve fiscal arithmetic.
In an important fiscal manoeuvre, the Budget has aligned with international best practice by shifting the primary fiscal anchor to the debt-to-GDP ratio. It aims to reduce the Union government’s debt ratio to 50% by fiscal 2031, down from 56.1% estimated for this fiscal. This framework gives the government greater fiscal flexibility to address contingencies and calls for faster fiscal correction in strong growth years versus gradual adjustment in below-trend periods.
Crisil’s calculations
Crisil’s calculations indicate the debt target is achievable if India sustains a nominal growth rate of about 10.4% per year—the average of the past decade—and lowers the fiscal deficit to 3.5% by fiscal 2031. The Economic Survey projects a 50-bps lift in potential real GDP growth to 7% over the medium run, broadly consistent with our nominal growth assumption. However, the government’s rising interest payments in recent years have become an impediment in reducing the fiscal deficit. Interest payments accounted for roughly a quarter of the Centre’s expenditure and 3.6% of GDP this fiscal, above pre-pandemic trends. This has contributed to a rise in government borrowings budgeted for the upcoming fiscal.
Credible fiscal goals and sustained fiscal consolidation will keep macroeconomic fundamentals strong and provide a buffer in the highly uncertain environment. Aiming for a lower fiscal deficit, the Budget has targeted some select sectors it sees as key to sustaining the economy’s long-term resilience. Manufacturing is at the centre of the growth strategy. Building on the Economic Survey, the Budget focuses on seven strategic, new-age manufacturing sectors. The government is nourishing these sectors through a coordinated set of measures of incentives, establishing dedicated industry-specific corridors, and tax relief. These, coupled with incremental steps to improve the ease of doing business and incentives in strategic areas, should contribute to a gradual revival in private investment. After the pandemic, investment growth has been driven largely by government and household spending; yet the overall investment-to-GDP ratio remains stuck at ~30 %.
Major challenges
From a medium- to long-term perspective, creating jobs and skilling workers will be a major challenge, especially as technological advancements generate displacement and disruption. The government has seen the services sector as key for sustaining employment. The Budget announced skill-building measures in medical services, tourism, and hospitality, which may withstand forces of automation better.
For now, though, capital outflows and a weakening rupee have been the main blemishes on an otherwise healthy 2025 macroeconomic story. The rupee depreciated sharply in the current fiscal, becoming the worst-performing emerging market currency. Net foreign portfolio investments were negative in equities and muted in debt, and net foreign direct investment remained subdued during the first months of the fiscal. The Economic Survey observed that “India’s strongest macroeconomic performance in decades has collided with a global system that no longer rewards success with currency stability and capital inflows”.
Steps to draw foreign capital into fast-growing sectors such as data centres through long-term tax holiday stability are salutary. This should encourage durable investment and complement a pick-up in FDI expected from the investment announcements by global technology majors. In addition, the Budget creates channels for non-resident Indians and foreign investors to buy Indian equities by raising the investment caps. Clearly, the ministry has preferred facilitation over tweaking capital gains. Over time, both measures are expected to boost inflows.
In the mercurial global environment, the Budget has played a stabilising role in strengthening the fundamentals—fiscal discipline, targeted expenditure, and a continuing march to easing the business environment. The recently signed trade agreements will become impactful only once they are fully implemented. Meanwhile, securing a trade deal with the US would reduce the uncertainty and punitive impact of the existing 50% tariffs, improve confidence, and encourage further inflows into India.
While a lot remains pending to ease doing business and revive private investment, the government has been taking measures beyond the Budget in the form of reforms and regulatory easing. Relentless efforts in this direction are needed to truly transform growth “potential to performance”, as the Budget put it. All eyes are now on the monetary policy and the new CPI and GDP series.
The authors are respectively the Chief Economist and Senior Economist at Crisil Ltd.
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.”
This year, we also have two critical data announcements—a complete overhaul of the Consumer Price Index (CPI) and gross domestic product (GDP) series.
Set against a volatile global backdrop and major data revisions, the Union Budget charts a path of fiscal discipline and targeted growth.
By Dharmakirti Joshi & Pankhuri Tandon
A march of announcements generally makes February policy-heavy. The Union Budget and monetary policy review rub elbows within a week of each other, on a stage first occupied by the Economic Survey. This year, we also have two critical data announcements—a complete overhaul of the Consumer Price Index (CPI) and gross domestic product (GDP) series. The revisions involve rebasing the data to a more recent year, adopting new methodologies, and incorporating fresh data sets. Such changes can alter the measured size of the economy, its growth speed, and inflation numbers. Hence, the Budget should be assessed keeping in mind these forthcoming developments.
This fiscal’s budget was framed under an unusual mix of circumstances: India’s standout growth performance amid a challenging global environment marked by heightened uncertainty and risks stemming from tariff disputes and geopolitical conundrums. Against this milieu, growth was supported by directed fiscal measures and monetary easing. While real GDP growth remains strong, nominal growth—crucial for tax collections and corporate performance—is estimated to be 210 basis points (bps) below the budgetary target of 10.1 % for the fiscal. Nevertheless, the government managed the trade-offs well and achieved the fiscal deficit target set out in the Budget.
Fiscal marksmanship has been a hallmark of the government’s budgeting, with the pandemic year as the sole exception. In the post-pandemic period, the government engineered a sustained reduction in fiscal deficit in line with its guidance. The latest Budget targets a fiscal deficit of 4.3% of GDP and assumes 10% nominal GDP growth for the coming fiscal—higher than the 8% estimated for the current fiscal. Higher nominal growth expands the tax base and should improve fiscal arithmetic.
In an important fiscal manoeuvre, the Budget has aligned with international best practice by shifting the primary fiscal anchor to the debt-to-GDP ratio. It aims to reduce the Union government’s debt ratio to 50% by fiscal 2031, down from 56.1% estimated for this fiscal. This framework gives the government greater fiscal flexibility to address contingencies and calls for faster fiscal correction in strong growth years versus gradual adjustment in below-trend periods.
Crisil’s calculations
Crisil’s calculations indicate the debt target is achievable if India sustains a nominal growth rate of about 10.4% per year—the average of the past decade—and lowers the fiscal deficit to 3.5% by fiscal 2031. The Economic Survey projects a 50-bps lift in potential real GDP growth to 7% over the medium run, broadly consistent with our nominal growth assumption. However, the government’s rising interest payments in recent years have become an impediment in reducing the fiscal deficit. Interest payments accounted for roughly a quarter of the Centre’s expenditure and 3.6% of GDP this fiscal, above pre-pandemic trends. This has contributed to a rise in government borrowings budgeted for the upcoming fiscal.
Credible fiscal goals and sustained fiscal consolidation will keep macroeconomic fundamentals strong and provide a buffer in the highly uncertain environment. Aiming for a lower fiscal deficit, the Budget has targeted some select sectors it sees as key to sustaining the economy’s long-term resilience. Manufacturing is at the centre of the growth strategy. Building on the Economic Survey, the Budget focuses on seven strategic, new-age manufacturing sectors. The government is nourishing these sectors through a coordinated set of measures of incentives, establishing dedicated industry-specific corridors, and tax relief. These, coupled with incremental steps to improve the ease of doing business and incentives in strategic areas, should contribute to a gradual revival in private investment. After the pandemic, investment growth has been driven largely by government and household spending; yet the overall investment-to-GDP ratio remains stuck at ~30 %.
Major challenges
From a medium- to long-term perspective, creating jobs and skilling workers will be a major challenge, especially as technological advancements generate displacement and disruption. The government has seen the services sector as key for sustaining employment. The Budget announced skill-building measures in medical services, tourism, and hospitality, which may withstand forces of automation better.
For now, though, capital outflows and a weakening rupee have been the main blemishes on an otherwise healthy 2025 macroeconomic story. The rupee depreciated sharply in the current fiscal, becoming the worst-performing emerging market currency. Net foreign portfolio investments were negative in equities and muted in debt, and net foreign direct investment remained subdued during the first months of the fiscal. The Economic Survey observed that “India’s strongest macroeconomic performance in decades has collided with a global system that no longer rewards success with currency stability and capital inflows”.
Steps to draw foreign capital into fast-growing sectors such as data centres through long-term tax holiday stability are salutary. This should encourage durable investment and complement a pick-up in FDI expected from the investment announcements by global technology majors. In addition, the Budget creates channels for non-resident Indians and foreign investors to buy Indian equities by raising the investment caps. Clearly, the ministry has preferred facilitation over tweaking capital gains. Over time, both measures are expected to boost inflows.
In the mercurial global environment, the Budget has played a stabilising role in strengthening the fundamentals—fiscal discipline, targeted expenditure, and a continuing march to easing the business environment. The recently signed trade agreements will become impactful only once they are fully implemented. Meanwhile, securing a trade deal with the US would reduce the uncertainty and punitive impact of the existing 50% tariffs, improve confidence, and encourage further inflows into India.
While a lot remains pending to ease doing business and revive private investment, the government has been taking measures beyond the Budget in the form of reforms and regulatory easing. Relentless efforts in this direction are needed to truly transform growth “potential to performance”, as the Budget put it. All eyes are now on the monetary policy and the new CPI and GDP series.
The authors are respectively the Chief Economist and Senior Economist at Crisil Ltd.
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.”
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