RBI Paper: Union Budget Balances Fiscal Consolidation and Growth Goals Prudently

The Union Budget for the financial year 2025-26, presented by Finance Minister Nirmala Sitharaman, strategically balances fiscal consolidation with economic growth objectives, according to an article authored by Reserve Bank of India (RBI) staff members.

While the views expressed in the article do not necessarily reflect the official stance of the central bank, authors Akash Raj, Harshita Yadav, Kovuri Akash Yadav, Aayushi Khandelwal, and others emphasized the government’s commitment to fiscal discipline. The article, published in the RBI’s February bulletin, highlights the Budget’s role in fostering inclusive and sustainable economic expansion while prudently managing public finances.

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Union Budget: Sectors in Focus

With a fiscal deficit target of 4.4% of GDP, the Budget seeks to strike a balance between fiscal consolidation and the need for robust economic growth. The document outlines a comprehensive strategy to stimulate various sectors of the economy, focusing on four primary growth pillars: agriculture, small businesses, exports, and investments. These sectors are expected to play a critical role in driving India’s economic trajectory forward by generating employment, enhancing productivity, and fostering innovation.

Additionally, the Budget introduces key reforms across multiple domains, including taxation, power, urban development, mining, financial services, and regulatory frameworks. These reforms are designed to streamline governance, improve ease of doing business, and attract both domestic and foreign investments. By addressing structural bottlenecks, the government aims to create a more conducive environment for economic activity and long-term growth.

A notable highlight of the Budget is the provision of Rs 1 lakh crore in tax relief for the middle class, a measure expected to increase household disposable income and boost consumer spending. This initiative is likely to have a cascading effect on the broader economy by driving demand across various sectors, including retail, real estate, and automobile industries. Increased consumption, in turn, can support higher production levels and job creation, contributing to economic expansion.

Union Budget’s Plan Ahead

Earlier this month, RBI Governor Sanjay Malhotra lauded the Union Budget for FY26, describing it as an "excellent" document that effectively supports economic growth while aligning with the central bank’s objective of controlling inflation. He noted that the Rs 1 lakh crore tax relief aimed at spurring consumption is unlikely to exert significant inflationary pressure, alleviating concerns about potential price rises.

Moreover, the Budget underscores the government’s commitment to fiscal responsibility while ensuring that growth remains inclusive and sustainable. By prioritizing key sectors, implementing structural reforms, and providing tax relief, the Budget aims to reinforce India’s economic resilience and set the stage for long-term prosperity. The measures outlined in the document are expected to bolster investor confidence and further India’s position as one of the fastest-growing major economies in the world.