Fiscal Policy and Public Finance in India: Low Deficit Targets & State Challenges (2025-26)

Описание: In this video, we analyze the Union Budget 2025-26 and the current state of State Finances. If you are researching why fiscal policy and public finance in India has a low degree of flexibility for state governments or why GST revenues have remained low relative to pre-GST levels, this deep dive covers the critical data you need.
Video Chapters & Key Insights:
1. Union Budget 2025-26 Overview: We break down Finance Minister Nirmala Sitharaman’s budget, which targets a fiscal deficit of 4.4% of GDP for 2025-26. We look at the "4 Engines of Growth" (Agriculture, MSMEs, Investment, Exports) and the push for fiscal consolidation to keep central debt on a declining path.
2. The Crisis of Low State Revenues (GST): Despite the budget hype, state finances are under pressure. Since the implementation of GST, aggregate revenue from subsumed taxes has dropped from 6.5% of GDP (2015-16) to 5.5% (2023-24). We explain why states like Punjab and Chhattisgarh are seeing lower revenue collections compared to the pre-GST regime.
3. High Committed Expenditure: Did you know that 53% of State revenue receipts go purely toward salaries, pensions, and interest payments?. When subsidies are added, this creates a situation where fiscal policy and public finance in India has a low capacity for new development projects without central help.
4. Dependency on the Centre (SASCI): With state capital expenditure flatlining, states are relying heavily on the "Scheme for Special Assistance to States for Capital Investment" (SASCI). The Centre has allocated Rs 1.5 lakh crore in 50-year interest-free loans for FY26.
5. The 16th Finance Commission & Inequality: We discuss the upcoming 16th Finance Commission report (due Oct 2025) and the tension between "equity and efficiency." Richer states are demanding incentives for performance, while poorer states need resources to catch up. We also cover the debate over using 2011 population data vs. 1971 data.
Sources Used:
• Union Budget Speech 2025-26
• PRS Legislative Research: State of State Finances 2025
• NIPFP: 16th Finance Commission Terms of Reference
• FRBM Act & Review Committee targets

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