The budget of the Government of India for the coming financial year 2025-26 was presented in Parliament on 1 February 2025.
The budget claims to serve the interests of all but primarily takes care of the interests of the present ruling class of capitalists, headed by the monopoly houses. The budget ensures that the accumulation of wealth by the capitalist class continues not only unhindered but is accelerated. The Finance Minister, in her budget speech, highlighted various sops and crumbs given to the workers, peasants, women and youth, to create the impression that the government is concerned about the needs of all classes of people.
Like most government documents, the budget is presented in a language and form which makes it extremely difficult for most people to understand. Presented below is an analytical coverage of the budget in two parts: Part 1 – Explanation of Terms and Process; Part 2 – Analysis of the 2025-26 Budget.
Part I: Explanation of Terms and Process
Like the budget many of us prepare for our home, the Union Budget is also an exercise of estimating the income and planning the expenditure of the Central Government. If the expenditure is likely to exceed the income, a plan has to be made about how the gap will be met.
The Union Budget presents the Annual Financial Statement (AFS) which shows the estimated income and expenditure of the Government of India for the coming financial year (FY). (The financial year followed by the government is 1 April to 31 March.) This is referred to as the Budgeted Estimate or BE. The AFS also presents both BE and the Revised Estimates ( RE) of income and expenditure during the year which is coming to an end.. For comparison and showing the trend, the AFS also gives the actual income and expenditure for the previous FY. So the AFS presented on 1 Feb 2025 had the BE for 2025-26, the BE & RE for 2024-25 and the actuals for 2023-24.
The Budget is presented under two categories, viz, Revenue Budget and Capital Budget.
Revenue Budget
The Revenue Budget consists of two parts – Revenue Receipts and Revenue Expenditure. Revenue Receipts are further made up of two parts – Tax and Non-tax.
Non-tax Revenue Receipts refer to interest received on loans given, dividend received from public sector companies, fees and other income for services rendered by the Government.
Tax Revenue Receipts are made up of Direct and Indirect Taxes and Duties levied by the Central Government. Direct Taxes are primarily Corporate Tax which is paid by companies on their profit, and Income Tax which is paid by individuals based on their income. Only the Central Government is authorised to levy direct taxes.
Indirect Taxes consist of Goods & Service Tax (GST), Custom Duty and Excise Duty. Excise Duty is levied only on goods not covered by GST, which are at present petrol, diesel, crude oil, natural gas and jet fuel. The introduction of GST on 1 July 2017 led to the replacement of several indirect taxes which used to be levied by the central and state governments. It also led to uniform rate of tax on goods and services across the country, taking away a major part of the power of states to decide on tax rates.
Customs Duty is levied on goods and services imported into the country. Only the Central government is authorised to levy custom duty.
The GST rates are decided by the GST Council, which is headed by the Union Finance Minister and includes the state finance ministers as members. State governments now are left with power to decide the rates of only liquor excise duty and sales tax on petroleum products.
A small amount of tax revenue comes from the tax levied on sale and purchase of shares, called Security Transaction Tax (STT).
The AFS shows only the share of the GST of the Central Government. (State government’s share of GST goes directly to the concerned state.)
These taxes and duties are called Indirect because they generally get hidden in the price. For example, Maximum Retail Price (MRP) does not show how much indirect tax (GST, custom duty, etc.) is being charged. Further, indirect tax amount is the same for every buyer when any good or service is purchased and does not depend upon the income of the buyer.
Tax revenue estimate includes the impact on tax collection of any changes proposed in the Budget in the rate of direct or indirect taxes.
Revenue Expenditure refers to the money spent for the normal running of government departments and the provision of various services. It includes interest payments on debt, staff salaries, pension, subsidies, grants, etc. Broadly, the expenditure which does not result in the creation of long-term assets is treated as revenue expenditure. All grants given to the State Governments/Union Territories and other parties are also treated as revenue expenditure in the books of the Union Government even though some of the grants may be used for creation of capital assets by the grantee bodies/entities.
Revenue Deficit
For years, the revenue receipts of the Central Government have been less than the revenue expenditure. The shortfall is referred to as ‘revenue deficit’. It means that the government has to borrow year after year even for meeting its normal running expenses.
The fact that there is a revenue deficit every year shows that the government has been in a debt trap. The increase of its debt year after year leads to continuously rising interest burden. A substantial part of revenue receipt is spent on interest payment and not on any socially useful activity.
Capital Budget
Capital receipts and capital expenditure together constitute the Capital Budget. The capital receipts consist of long-term loans raised by the Government from banks and insurance companies within the country (these are termed as market loans, which are to be repaid in 10 or more years), short-term loans raised through the sale of Treasury Bills, loans from foreign Governments and agencies, recovery of loans from State and Union Territory Governments and other parties, and miscellaneous capital receipts (which include privatisation proceeds).
Capital expenditure consists of expenditure on the creation of long-term assets, including physical assets like land, buildings, roads, machinery and equipment, as well as financial assets such as shares in companies and loans given to State and the Union Territory Governments, Government companies, and other parties.
The Expenditure Budget includes the budget for each ministry or department and for each union territory, and covers estimates of both revenue and capital expenditure.
Fiscal Deficit
The fiscal deficit is calculated as the difference between the government’s total expenditure and total revenue receipts. Total expenditure includes both revenue expenditure and capital expenditure.
Fiscal deficit = Total expenditure – Revenue receipts
The financing of the fiscal deficit requires more loans to be taken by the Central government.
One of the reasons for giving a high level of importance to the size of fiscal deficit is that a large and growing deficit makes the country less credit-worthy. It brings down the international credit rating of India, which means that the rate of interest on foreign loans will go up for both the government and for private Indian companies. A high deficit also leads to high inflation if the government resorts to printing more rupee notes for financing the deficit.
Besides the fiscal deficit of the Central government, state governments too have significant deficit in their budgets. High deficits of central and state governments imply that a large share of bank credit will get used up for financing these deficits, which could lead to shortage of bank credit for private companies and individuals.
Growth Rate
The Budget is worked out assuming a certain growth rate of the economy at current prices. The growth rate at current prices is referred to as Nominal Growth Rate. The nominal growth rate reflects the combined impact of the increase in volume of output of goods and services and the increase in their prices.
Nominal Growth = (Growth in volume of output of goods and services) x (Increase in prices of goods and services)
The rate of growth in volume of output is also called the Real Growth Rate. It is calculated by adjusting the Nominal Growth Rate downward, to remove the impact of the increase in prices.
Budget Process
Every year, a drama is conducted in the name of pre-budget consultations. The Finance Minister and his team hold a series of meetings with representatives of different interest groups. They hold meetings not only with the associations of big capitalists such as CII, FICCI and ASSOCHAM, but also with representatives of the central trade union federations and with farmers’ and peasants’ unions and associations. The impression is created that the Government of India listens to the representatives of all classes, and does its best to balance these interests.
However, the real purpose of pre-budget consultations is to provide a forum for monopoly capitalists, Indian and foreign, to formally convey their most urgent demands to the Finance Minister and team of officials involved in formulating the budget. It is in addition to the informal consultations between, which go on all the time, but behind the curtain.
A day before the Union Budget, the government presents the Economic Survey. It contains the authoritative and updated data on the country’s economy. It gives a detailed account of the various sectors of the economy and overall economic scenario of the country in the past years and provides an outline for the year ahead.
The government needs approval of the Parliament for the proposed Expenditure Budget as well as for any changes in taxes and duties.
Once the Budget is approved by the Parliament, it authorises the Central Government to incur the approved amounts of expenditure as specified and to borrow additional money during the year up to the specified limit. The Budget is accompanied by the Finance Bill which lays down the tax rates, exemptions and rules to be applicable in the coming year. Once enacted, the Finance Act authorises the government to collect taxes at the prescribed rates.
Part 2 – Analysis of the 2025-26 Budget
Revenue Collection
In the budget for 2025-26, the total central tax collection is estimated at Rs. 42.7 lakh crore. The break-up of the tax collection is as below:
| Type of Tax | Revenue
(Rs lakh crore) |
Percentage of Total Taxes |
| Corporation tax | 10.82 | 25.3% |
| Personal income tax | 13.57 | 31.8% |
| Indirect tax (GST, Custom and excise duty) | 17.40 | 40.8% |
| Miscellaneous | 0.91 | 2.1% |
Non-tax revenue receipts are estimated to be Rs. 5.83 lakh crore for 2025-26.
Out of the total central tax collection, the central government shares about third with the state governments. Tax revenue retained by the central government is estimated at Rs. 28.37 lakh crore. Total revenue receipts, including tax and non-tax receipts, is estimated to be Rs. 34.2 lakh crore in 2025-26.
As can be seen from the table above, the largest part of taxes will be collected through indirect taxes, most of which is paid by the masses of working people.
The next largest contributor is personal income tax. There are around 8 crore personal income tax filers in the country; most of whom are regular wage workers. The lowest contribution to tax revenue is from profits made by corporations of capitalists.
The burden of indirect tax on workers, peasants and other working people is actually much higher when indirect taxes levied by states (Liquor excise duty and VAT) are added.
The GST burden on people has been going up year after year. The GST was introduced in July 2017. The total GST (Centre + States) collected from people in 2018-19 was Rs. 11.77 lakh crore. The GST collection in 2024-25 is expected to be around Rs. 21.5 lakh crore. In a period of seven years the burden has gone up by over 80%, while real wages of workers and incomes of peasants have stagnated or declined.
While working people have been burdened with ever higher taxes, the rate of tax on profits of capitalist corporations has been repeatedly reduced. In September 2019, the rate of corporation tax was reduced from 30% to 22%. For newly established manufacturing companies, the rate of tax was reduced to 15%. The share of corporation tax in total central tax collection has declined from 32 percent in 2018-19 to 25% in 2025-26. The annual budgets during this period have been designed to rob the working people while lowering the tax burden on capitalists.
Any tax concession to workers is over-blown by the media controlled by monopoly capitalists and the government. In contrast, the concessions given to capitalists are never highlighted. In the budget presented on 1 Feb 2025, it has been claimed that a big tax relief has been provided to the ‘middle class’. This announcement is being advertised repeatedly and widely to create a false impression that tens of crores people in the middle income strata are going to benefit. The announcement is being highlighted that no income tax will be payable by those earning income up to Rs. 12 lakh per year from 2025-26. The government is hiding the fact that already no tax was to be paid by those earning up to Rs 7 lakh annually. Increase in the limit from Rs 7 lakh to 12 lakh, is expected to benefit only 70 lakh to 1 crore people, out of the roughly 50 crore workforce of the country!
The same budget also announced the extension of tax concessions for new companies (start-ups) and for investments made by a few foreign capital institutions (Sovereign Wealth Funds and Pension Funds) in infrastructure by another 5 years. These concessions are not being talked about in the news media.
It is important to remember that taxes levied by the government are claims on the value added by human labour. The owners of capital claim an ever increasing share of the value added. Those whose toil creates the value get paid only the minimum required to keep them working. Even this minimum amount is further reduced by the present system of high indirect taxes and personal income tax.
Workers and peasants are paying a much larger share of their income as tax in comparison with the wealthy capitalists, who pay a very tiny share of their income. The present taxation system brings about a redistribution of income, from the toiling majority of people to the exploiting minority of capitalists.
Expenditure Composition
The revenue expenditure planned for 2025-26 is Rs. 39.44 lakh crore. In addition, the capital expenditure of Rs. 11.21 lakh crore is planned for creating infrastructure and other assets. Thus, total expenditure (revenue + capital) is estimated to be Rs 50.65 lakh crore. The shortfall of Rs. 16.45 lakh crore between expenditure and income will have to be made up by taking additional loans.
The largest revenue expenditure year after year is incurred on paying interest on loans, which is estimated to be Rs. 12.76 lakh crore, which is 45% of the central government’s tax revenue. The next largest revenue expenditure is on security establishments consisting of defence (Rs. 3.11 lakh crore) and central police forces (Rs. 1.44 lakh crore), totalling to Rs. 4.45 lakh crore, or nearly 16% of tax revenue.
A major part of the capital expenditure is planned to be spent on building roads and improving railway infrastructure. Such expenditures are of great interest to the capitalists not only for their future use but also because they support the growth of cement, steel and other construction related industries. Another major part of capital expenditure is proposed for the purchase of arms and other needs of the defence forces.
The capital budget has provided Rs. 1.8 lakh crore for buying new arms. India has been one of the largest buyers of arms in the world for the last many years. Ever increasing expenditure on the security forces serves to maintain the rule of the bourgeoisie and its imperialist ambitions.
Thus nearly 60% of tax revenue will be spent on things which do not contribute in any way to improve the lives of workers and peasants. This parasitic nature of the budget has not changed no matter how many times parties and governments changed at the Centre. There is too little left to spend adequately on all the socially essential needs and productive areas such as food and public distribution, agriculture, rural development, education, health, water supply and sanitation, etc.
Deficit and Debt
For making up the shortfall between revenue expenditure and revenue receipts, and for incurring the capital expenditure, the government will be borrowing Rs. 14.82 lakh crore from banks and other financial institutions during 2025-26. The union government is already borrowing Rs. 14.13 lakh crore to make up the deficit during the current year (2024-25). As a result of these additional loans, the outstanding debt of the union government will touch nearly Rs. 176 lakh crore by the end of March 2025 and is expected to rise to Rs 190 lakh crore by March 2026 end.
Due to increase in debt of the government year after year, interest payment also keeps soaring year after year. The interest payment on loans has gone up more than 50% between 2021-22 and 2025-26.
It must be noted that most of the loan taken by the union government is used up for paying the interest on loans taken in earlier years. The government is thus in a debt trap of loan givers. The more it borrows, more is the interest payment and it therefore needs to borrow more for making the payment of interest.
The beneficiary of high levels of government borrowing are the banks and other financial institutions who are assured of guaranteed return on the money capital of the bourgeoisie kept in banks and lent to the government. It is the most secure part of the loan portfolio of these institutions because government bonds are considered to be zero risk.
When a bank lends to a private company engaged in some sector of goods or services, out of the surplus value generated, a portion gets paid to the bank as interest. When a bank lends to the government, which is engaged mostly in activities of a non-commercial nature, the interest it claims is of a thoroughly parasitic nature. It is not a share of surplus value because the government does not generate a surplus. What is being claimed is a share of public revenue. It is a form of robbing the entire people in order to guarantee returns on the loans advanced by the banks.
Monopoly capitalists want the Government of India to borrow more and step up public investment in infrastructure projects, to spur the demand for goods and services. At the same time, they want the Government of India to avoid excessive borrowing and maintain “fiscal responsibility”.
Fiscal responsibility is a concept that has been created by the biggest money-lending institutions of the world. According to this concept, the State should be a “responsible” borrower. It should service its debt promptly. It should not get so highly indebted that it is unable to repay. It should not also stop borrowing altogether. It should stick to an agreed level of deficit, an agreed level of borrowing every year. In other words, the concept “fiscal responsibility” is based on the anti-people outlook that the State’s primary responsibility is not to provide for its citizens but to satisfy the money-lenders.
This has made the announcement of the achievement of the fiscal deficit target of the current year and the targets for coming years an important highlight of the budget for the bourgeoisie.
Conclusion
The way in which the annual budget is prepared reveals the class nature of the State. A deficit target acceptable to the big capitalists is first decided. The likely growth in revenues is then estimated, taking into consideration all the concessions already given and to be given to monopoly capitalists. The estimated revenue receipts and fiscal deficit together determine the maximum expenditure that can be carried out. Within that limit of expenditure, the claims of the money-lending institutions for interest payment and the claims of the security apparatus are first met, after which whatever little is left is planned to be spent on education, health and other basic needs of the toiling majority of our people. The budget-making process gives the highest priority to the interests of the ruling class, headed by the monopoly capitalists. Every other interest is subordinated to this requirement.
The Economic Survey produced by the Ministry of Finance presented in the Parliament a few years back had a Sanskrit quotation from Kalidasa, which was translated as follows:
“The state collects tax for the greater welfare of its citizens in the same way as the sun evaporates water, only to return it manifold in the form of rain.” (Chapter 1, Shloka 18) — Mahakavi Kalidasa’s Raghuvansham
The budget presented on 1st February is in blatant violation of this principle. Tax collection is not at all like the sun evaporating water from all available water bodies. More is extracted from the toiling majority of people, as we have seen in the Part II, than from the wealthy exploiters.
What is taken away through taxation does not come back to all the people like the evaporated water coming back in the form of rain, as we have seen in the analysis of the Expenditure Budget. The resources sucked out of the already exploited working people get spent in a way that suits the interests of the capitalist monopoly houses.
The budget, in effect, acts as a well-oiled mechanism for redistributing wealth from those who create it, the workers and peasants, to those who usurp it, the capitalists.