A Budget that is mostly good but with one wrong move

Context: Certain measures in the Budget should have been implemented sooner, and replacing ‘fiscal deficit’ as a key indicator is an incorrect decision.

How realistic are the government’s tax revenue growth assumptions?

• Trends in Gross Tax Revenue (GTR): The Government of India’s GTR has shown a downward trend in recent years. The buoyancy of GTR has decreased for three consecutive years, from 1.4 in 2023-24 to 1.15 in 2024-25 (RE), and further to 1.07 in 2025-26 (BE). As a result, the growth in GTR has declined from 13.5% in 2023-24 to 11.2% in 2024-25 (RE), and 10.8% in 2025-26 (BE). Within the tax revenues, the growth rate of Goods and Services Tax (GST) has also decreased from 12.7% in 2023-24 to 10.9% in 2025-26 (BE).
• Shift towards Direct Taxes: The government’s tax structure has shifted from indirect taxes to direct taxes, with the share of direct taxes in GTR increasing from 52% in 2021-22 to 59% in 2025-26 (BE).
• Personal Income Tax: Growth has decreased from 25.4% in 2023-24 to 20.3% in 2024-25 (RE) and further to 14.4% in 2025-26 (BE). The decline in growth for 2025-26 (BE) is partially attributed to the announced income-tax concessions.
• Corporate Income Tax: The growth in 2024-25 (RE) is relatively low at 7.6%. However, this has been increased to 10.4% in 2025-26 (BE).

Is the level of government expenditure appropriate, and is its composition efficient?

• Overall Expenditure: The government is projected to spend Rs 50,65,345 crore in 2025-26, reflecting a 7.4% increase compared to the revised estimate of 2024-25. The proportion of government expenditure to GDP has been reduced from 14.6% in 2024-25 (RE) to 14.2% in 2025-26 (BE). The growth in total expenditure is 7.6% in 2025-26 (BE), which is lower than the budgeted nominal GDP growth of 10.1%.
• Capital Expenditure: Capital expenditure has been increased from Rs 11.11 lakh crore in the current fiscal year to Rs 11.21 lakh crore for the upcoming fiscal year. The quality of government expenditure has steadily improved, as the share of capital expenditure in total expenditure has grown. This share has risen by 10 percentage points from 2020-21 to 2025-26 (BE).
• Investment in Key Areas: Investment continues to be a primary focus in the Budget, categorized into three main areas—people, economy, and innovation.
• Investment in people: This includes the creation of Atal Tinkering Labs, broadband connectivity for schools and healthcare centers, Centers of Excellence for Skilling, and initiatives aimed at Gig workers.
• Investment in the economy: Focuses on infrastructure development, interest-free loans to states for capital expenditure, asset monetization, and urban redevelopment projects.
• Investment in innovation: Allocates funds for private sector-driven R&D initiatives and missions to support urban planning and knowledge systems.
• AI Infrastructure: The Government of India is tasked with developing large-scale Artificial Intelligence (AI) infrastructure to enable the adoption of emerging technologies.

⁠Is the shift away from using fiscal deficit as a primary indicator of fiscal prudence a positive step?

• Change in Indicator: One of the measures introduced in the Budget is the shift away from using fiscal deficit as a measure of fiscal discipline. The practice of providing a glide path for fiscal deficit is being discontinued. Going forward, the focus will shift to annually reducing the debt-GDP ratio.
• New Target: The central government aims to reduce its outstanding liabilities to approximately 50% of GDP by March 2031.
• Debt-GDP Ratio: In the 2025-26 Budget, the glide path for fiscal deficit is discontinued. Alternative projections for the debt-GDP ratio are provided, based on nominal GDP growth assumptions of 10.0%, 10.5%, and 11.0%.
• The glide paths are presented with varying growth assumptions and different levels of fiscal consolidation, ranging from mild to high. This approach makes the entire exercise unclear and lacking in transparency.
• Fiscal Deficit Target: The fiscal deficit target for FY26 is set at 4.4% of GDP, down from the previous target of 4.8% for the current financial year.

Way forward:

• Ensure Transparency in Fiscal Deficit: Reinstate explicit fiscal deficit targets with defined timelines rather than solely emphasizing the debt-GDP ratio. This approach would provide better clarity and accountability in fiscal management. 
• Improve Investment Efficiency: Focus on strategic investments in critical sectors such as AI infrastructure, research and development, and innovation. Ensure these investments align with long-term growth objectives and strengthen overall economic resilience.

What is the SC directive on sacred groves?

Mains Paper 3

Context: On December 18, 2024, the Supreme Court directed Rajasthan’s Forest Department to conduct satellite and ground surveys to map all sacred groves, considering their cultural and ecological significance, irrespective of their size.

Rajasthan is home to around 25,000 sacred groves, locally called ‘orans,’ spanning nearly 6 lakh hectares across the state.

What are the implications of the December 18 order?

• Conflict with the Forest Rights Act (FRA), 2006: The order is in contradiction with the FRA, which was established to recognize and assign forest rights to gram sabhas. Instead, it shifts control from local communities to the Forest Department.
• Loss of Community Autonomy: Sacred groves, traditionally safeguarded by local communities, will now be managed by state authorities, potentially disrupting established cultural conservation practices.
• Potential Erosion of Traditional Governance Systems: The transfer of management could undermine customary laws and traditional conservation methods that have protected these groves for generations.

• Legal Precedent for Future Cases: By prioritizing the Wildlife Protection Act (WLPA), 1972, over the FRA, this order may set a precedent for the Forest Department to take control of other community-managed lands.
• Impact on Livelihoods and Religious Practices: Communities that rely on sacred groves for religious, medicinal, and cultural purposes may face restrictions due to their new classification as ‘community reserves’.

What did T.N. Godavarman v. Union of India establish about the definition of ‘forest land’?

• Broad Definition: The Supreme Court ruled that ‘forest land’ encompasses not only areas traditionally recognized as forests but also any land classified as forest in government records, regardless of ownership. 
• Expert Committees: The judgment instructed state governments to establish expert committees to identify areas that meet this definition of ‘forest land.’

How are sacred groves traditionally conserved by communities?

• Watershed & Ecological Functions: Sacred groves play a vital role in safeguarding natural water sources, preventing soil erosion, and regulating the local climate. 
• Example: Orans (Rajasthan) – These groves sustain perennial water streams and provide essential grazing lands for livestock. 

• Strict Protection through Customary Laws & Taboos: Communities enforce strict restrictions on activities such as tree felling, hunting, and resource extraction within sacred groves. 
• Example: Sarpa Kavu (Kerala) – These groves, dedicated to serpent deities, are protected by beliefs that cutting trees brings misfortune. 
• Religious & Cultural Practices for Conservation: Rituals, festivals, and communal prayers reinforce the sacred significance of these groves, ensuring continued conservation efforts. 
• Example: Devara Kadu (Karnataka) – Annual worship ceremonies promote community participation in preserving these forests. 
• Community Governance & Management: Local elders, priests, or village councils are responsible for maintaining and enforcing protective norms. 
• Example: Jahera (Odisha, Chhattisgarh) – Tribal groups like the Gonds and Santhals manage these groves as sacred sites. 
• Role in Biodiversity Preservation: Sacred groves serve as biodiversity hotspots, conserving endemic plant and animal species, including medicinal plants. 
• Example: Law Kyntang (Meghalaya) – Khasi communities protect these forests, which house rare orchids and medicinal herbs.

Way forward:

• Aligning Legal Frameworks: Modify policies to ensure the Forest Rights Act (FRA), 2006, and the Wildlife Protection Act (WLPA), 1972, function cohesively, acknowledging gram sabhas’ role in managing sacred groves while maintaining ecological balance. 

Community-Led Conservation: Reinforce traditional governance systems by granting legal authority to local communities for the management of sacred groves, combining scientific conservation approaches with cultural traditions.