India's Budget: Record Spending, Debt Worries Grow

India has unveiled a record budget of Rs 53.5 trillion, signaling a commitment to sustained public spending to support economic growth. The government aims to narrow the fiscal deficit to 4.3% of GDP, a key objective to maintain fiscal credibility and control borrowing costs.

This fiscal plan, however, reveals a significant structural challenge. For the first time, India's interest payments on debt, set at Rs 14 trillion, have exceeded its capital expenditure of Rs 12.2 trillion. This means the nation now prioritizes servicing past debts over investing in new infrastructure.

The budget attempts a delicate balance between boosting expenditure and reducing the deficit. Revenue receipts are projected to rise, and net market borrowing is planned to remain stable. Despite the positive deficit reduction trend since the pandemic's 9.2% deficit in FY2021, future growth faces headwinds from global uncertainties and potential US trade tariffs.

With growth expected to moderate from 7.4% to 6.8-7.2%, revenue generation could be impacted. A shortfall in growth could jeopardize the deficit target, potentially forcing mid-year spending cuts and complicating India's post-crisis economic management strategy.