A Critical Look at Unrealistic Projections and the Growing Debt Burden
The Union Budget 2025-26 presents an overly optimistic revenue projection while underestimating the fiscal burden of refunds, shortfalls, and rising interest liabilities. In this analysis, Shantanu Basu examines the gaps in revenue estimates, the growing dependence on borrowing, and the looming risk of a debt trap for India’s public finances.
-
Gross tax revenue: ₹34.20 lakh crore. Assuming an average refund rate of 20-25%, this figure is overstated by ₹8.50-10.50 lakh crore.
-
Dividends from CPEs and other investments: ₹69,000 crore. Hardly any CPE declared dividends for non-government shareholders in 2024-25, nor was there much accretion to Sinking Funds, which, in turn, affects the ability of CPEs to expand operations and provide for adequate depreciation. The stocks of prominent CPSEs have declined by as much as 30% in just five months, although the Sensex dipped only 13% (see attachment). Therefore, the prospects of rising dividends and divestment in 2025-26 appear doubtful, which may substantially increase the GOI’s borrowing.
-
Dividends from RBI & Other FIs: ₹2.65 lakh crore. The RBI’s ability to shore up the INR against currency volatility and financial institutions’ (FIs) capacity to provision for bad debts— which are rising rapidly—remain key concerns. This is especially critical when the recovery of NPAs is barely 15%, raising doubts about the adequacy of capital in state-owned banks and other FIs. More disconcertingly, according to Arvind Subramaniam (as stated in a YouTube The Wire interview), the RBI reportedly spent ~$220 billion from 2022-24 to support the INR, with ~$80 billion spent in Oct-Nov 2024 alone. Since then, the RBI has intervened regularly in the USD market, causing a severe liquidity shortfall in Indian banks. The banking system’s liquidity moved from a surplus of ₹1.35 lakh crore in November to a deficit of ₹0.65 lakh crore in December, further widening to ₹2.07 lakh crore in January and ₹1.59 lakh crore in February. Given the government’s growing demands for larger transfers of the RBI’s profits, the RBI will have a shrinking operational cushion—unless it relaxes the mandatory CRR requirement. If that happens, inflation will likely rise further. In effect, there are severe limitations on the government’s ability to extract more from the RBI in FY 2026-27 and beyond. -
Total revenue: ₹34.20 lakh crore. Against this, projected expenditure stands at ₹50 lakh crore, with the deficit being met by borrowing—85% of it from the money market—amounting to ₹16.42 lakh crore.
-
Corporate tax collection: ₹10.82 lakh crore at a 22% tax rate. With an average refund rate of 30%, this could create a fiscal gap of ₹3-3.50 lakh crore.
Individual income tax collection: ₹14.28 lakh crore—about 40% higher than corporate tax. Only 2.8 crore taxpayers contribute this enormous amount. Approximately three-quarters of these are government, PSE, AB, FI, bank, or insurance employees, while the remainder are payroll employees in the non-government sector. Most non-government jobs, however, are low-paid, lump-sum contract roles that do not qualify as payroll employment. Refunds may account for about 20%, potentially reducing the gross budget provision by ₹3 lakh crore.
-
GST collection: ₹11.78 lakh crore. Of this, ~25-30% is expected to be refunded to GSTIN holders or lost to pilferage, reducing the net collection by about ₹3-3.50 lakh crore.
-
Import duties: ₹1.89 lakh crore. These could be severely impacted if the U.S. enforces a tariff hike to 25%. Moreover, India will have little room to impose export duties on shipments to the U.S. For 2025-26, estimated export duties stand at just ₹6,200 crore.
-
Oil duties & cesses: ~₹2.60 lakh crore. This accounts for only about 7% of gross revenues since oil duties are outside GST, and states collect VAT and sales tax. Therefore, significant hikes in this category are unlikely.
Net Revenue Shortfall and Borrowing Needs
The net (gross collections minus refunds and shortfalls) revenue across all heads is expected to be about ₹9-10 lakh crore lower than the Union Budget’s gross estimates—around 27-29% lower than projected. With gross expenditure pegged at ₹50.98 lakh crore, the government will need to borrow ₹16.42 lakh crore + ₹9-10 lakh crore (~₹26 lakh crore) to bridge the fiscal gap. The additional interest liability on this borrowing (at a simple interest rate of 8%) for the first year alone would range between ₹2-3 lakh crore. This would be in addition to the ₹12.76 lakh crore allocated in Budget Estimates (BE) 2025-26 for interest payments.
Thus, interest payments in 2025-26 alone could consume 75-76% of total Union revenues. By 2026-27, this may rise closer to 90%, and by 2027-28, it could exceed 100% (turning negative) at the current trajectory.
A Fiscal Deadlock
Given these figures, the projected gross expenditure provisions appear unrealistic. Even deep cuts in social and economic sector spending—already seen in 2024-25—will be insufficient. The most concerning aspect is the defence budget, which will have to rely entirely on additional borrowing.
As per past practice, interest on borrowings for 2025-26 will be carried forward to 2026-27, further compounding cumulative interest obligations on past debt. This Budget—like its predecessors over the past decade—has pushed India’s public finances into negative territory, effectively ensnaring the country in a classical debt trap. 
Also Read: The Russo-Ukrainian Resource War and Its Resolution
Shantanu Basu
Writer is a retired senior civil servant, public policy analyst, author and commentator.
Disclaimer : PunjabTodayNews.com and other platforms of the Punjab Today group strive to include views and opinions from across the entire spectrum, but by no means do we agree with everything we publish. Our efforts and editorial choices consistently underscore our authors’ right to the freedom of speech. However, it should be clear to all readers that individual authors are responsible for the information, ideas or opinions in their articles, and very often, these do not reflect the views of PunjabTodayNews.com or other platforms of the group. Punjab Today does not assume any responsibility or liability for the views of authors whose work appears here.
Punjab Today believes in serious, engaging, narrative journalism at a time when mainstream media houses seem to have given up on long-form writing and news television has blurred or altogether erased the lines between news and slapstick entertainment. We at Punjab Today believe that readers such as yourself appreciate cerebral journalism, and would like you to hold us against the best international industry standards. Brickbats are welcome even more than bouquets, though an occasional pat on the back is always encouraging. Good journalism can be a lifeline in these uncertain times worldwide. You can support us in myriad ways. To begin with, by spreading word about us and forwarding this reportage. Stay engaged.
— Team PT