Finance Minister Nirmala Sitharaman has realised that she was operating under severe resource constraints while presenting the Union Budget for 2026-27, said former Finance Secretary of India Subhash Chandra Garg.
“For an economy where the nominal GDP is expected to increase by 10 per cent in FY 2026-27, the Finance Minister could not increase the expenditure even by 5.5 per cent or 6 per cent. It is good that Sitharaman recognised the writing on the wall and was pragmatic,” he added.
Garg was speaking in Kochi to deliver Malayala Manorama's 27th Budget Lecture held on Wednesday. The budget lecture series aims to dissect the Union budget and encourage informed discussions about it among the public.
Highlighting the impact of last year’s tax cut, Garg said just two crore people in India pay taxes now, after the tax exemption limit was raised to 12 lakh per annum.
“For the Assessment Year (AY) 2023-24, more than 8 crore Income Tax Returns (ITRs) were filed in India. Nearly 3 crore people paid the tax when the exemption was 7 lakh. Now, when the exemption limit has been raised to 12 lakh, it is my assessment that not more than 2 crore among the total 145 crore people in India would be paying tax,” Garg said. “Last year, the government had a plan for Rs 14.4 lakh crore to be received as income tax receipts. Thanks to the decision, 1.2 lakh crores have been wiped out,” Garg said.
He added that Prime Minister Narendra Modi’s "GST 2.0" tax relief, where the GST structure was simplified into primarily two slabs: 5% and 18%, took away another 1.3 lakh crores of GST income. This means that the government’s receipts from the GST are less than what it received two years ago.
Calling the tax exemption a misadventure, Garg said this decision wiped out much of the tax revenues. “Thankfully, the government realises that it doesn’t have any more space for doing this kind of misadventure,” he added.
The former Finance Secretary said the only revenue source that was increasing was the RBI dividend, which used to be Rs one lakh crore but increased to Rs 2.25 lakh crore over the last two years. “The government can expect about Rs 3 lakh crores to come from RBI dividend, but where does this come from. The RBI balance sheet is in rupees, and hence when our currency depreciates, the RBI profits rise, because the value of assets you bought in dollars rise. So, while the economy suffers due to dollar appreciation, RBI’s profits go up,” Garg said.
On disinvestment, Garg said the revenues were down to Rs 10,000-15,000 crore. “The government has stopped disclosing the disinvestment revenues in its budget. It doesn’t do that because it doesn’t really aim that much,” he added.
He also accused the Finance Minister of compensating real allocations with feel-good words. “She promised a lot of things, including five university towns and seven high-speed rail corridors. But, not a single rupee has been allocated for the same,” he said, adding these were nothing but real estate ideas.
Garg also urged the people to monitor the expenditure the government was incurring. “Is the government reforming the expenditures to serve the goal of what India would like to look at?” he asked.
He stated that over Rs 17 lakh crore were being spent on non-expenditure, which included pensions and interest payments. “All of us should be asking why we have come to the situation where the government spends this amount on things that don’t serve anything,” Garg said.
He also questioned whether the allocations were aimed at reforms. “We spent close to ₹7.85 lakh crore on defence. But, the defence systems and the wars of the world have completely changed. Even with the traditional expenditures, is there a reorientation of the defence expenditure?” he questioned.
Garg stated that though a big bulk of our expenditure was on public goods and services and human development, there was simply no reforms. “How much do the government spend on research and development? Did you notice a single paragraph on pollution and climate change or anything on courts and the logjam of cases?” he asked.
The expert said that a lot of expenditure that passes in the name of social welfare and redistribution was freebies. “There are a lot of freebies which are built into this Rs 10.75 lakh crore of the social welfare and human development expenditure. My rough estimate would suggest that roughly about 50 per cent of this is freebies,” he said.