The Budget is truly a Pareto optimal, one which makes some sections better off and no one worse off. While corporates may have expected some relief in tax which did not come about, the salaried class can be happy over the concessions given. But no section has been affected perversely. How then can one evaluate the Budget?

Does the Budget drive economic indicators through the proposals? The answer is yes. First there is a distinct boost given to consumption. The Finance Minister has stated that the revenue foregone is around ₹1 lakh crore. Money foregone by the government is funds gained by taxpayers. This amount could be either saved or consumed, or more likely apportioned between the two. Hence this can be considered to be a positive booster for both consumption and savings. Inflation has been one reason why consumption has been pushed back. Such tax benefits do help in providing comfort to taxpayers. In fact, the FMCG and consumer goods segment companies should take this positively as such savings for households should result in higher spending on these products.

The next issue is investment. Does investment get a boost? The government would be spending ₹11.2 lakh crore over a lower revised number of ₹10.2 lakh crore last year. This intuitively shows that that public expenditure will be on course and it is left to the private sector and States to follow. The Centre would be giving around ₹1.5-1.7 lakh crore to States which can be used for investment expenditure. Therefore there is reason to believe that investment would have gotten a prop for sure from the Budget. Leaving aside the transfers, almost three-fourths of the amount would be directed at roads, railways and defence. There would be backward linkages with the industries concerned in the private sector.

No impact on inflation

Third is inflation. Budgets in the past have been blamed for inflation due to higher spending by the government. This has not been the case in India where inflation has largely been on the food side, which is out of the purview of the Budget. In fact, the support programmes of the government in the form of free-food being given has buffered against inflation. Therefore, there is no impact on inflation per se. In fact, given excess capacity in most industries the possibility of excess demand forces building up is quite weak.

Fourth, is the issue of government crowding out private investment? Theory normally says that high government borrowing crowds out private sector as banks prefer to hold government paper and charge more to customers. However, this has not been the case in India where the net borrowing programme has been virtually capped in the last three Budgets. This means that there is no untoward pressure on liquidity. The quantum of fresh borrowing will be no different from FY25.

Fifth, the bond markets normally get edgy before the Budget. Related to borrowings being stable, the implication is that bond yields too will remain stable on account of the Budget. They would be driven more by what happens in the global spaces as well as action taken by the RBI on repo rate.

What the numbers imply

Now, are there any implications that can be had from the numbers? To begin with the corporate tax collections are to increase by 10 per cent next year. Given that their growth has been low in FY25, it can be surmised that it is assumed that the corporate show would be much better in FY26 compared with FY25 which leads to higher collections. Customs collections are assumed to be virtually flat at ₹2.4 lakh crore.

There has been a series of rationalisation in tariff rates announced, which are to lead to a slight fall in collections. Therefore it can be assumed that there would be nominal growth in imports, which also means that global commodity prices would be benign. This was the view of the World Bank too for commodity prices in 2025.

This can be connected also with the excise collections that are to remain unchanged especially on fuel products. The Budget has hence assumed either that the crude oil price will remain at the lower end or that even in case they do rise, the OMCs and government would share the cost.

There have been some interesting ideas that have been brought to the table by the Finance Minister this time. This is the concept of PPP in infra projects where there will be a move to get the Centre along with the States to involve the private sector to carry out projects. And this would be across all ministries which is different from the current route where the focus is just on three sectors. In fact, the Urban Challenge Fund envisages a collaboration of government support with bankable projects where PPP and bonds are involved too. It would need to be seen as to how these projects take shape as the approach is quite novel which gets all parties together on urban infra projects which could be the right way to go ahead.

Therefore the Budget has been quite appropriate for the prevailing conditions in the economy. While the immediate challenges of consumption and growth have been addressed through the tax and expenditure routes, a longer time-frame has also been kept in mind when planning infrastructure build-up in future.

The writer is Chief Economist, Bank of Baroda. Views are personal

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