As finance minister Nirmala Sitharaman presents the Union Budget 2025-26 in Parliament today, a look at some key terms and their significance in determining India’s economic roadmap

Gross domestic product

Gross domestic product (GDP) of a nation is the monetary value of “final” goods and services (those consumed by the final user) produced within its geographies in a given period of time, say a quarter or a year. Apart from production for sale, it also includes some no-market production such as certain defence, education and health services provided by the government, but excludes unpaid work (such as voluntary household work) and black-market activities. GDP also takes into account wear and tear of the capital stock.

Nominal and real GDP

Nominal GDP reflects the current value of the currency, unadjusted for inflation/deflation. Real GDP eliminates the distortion caused by inflation or deflation, and, therefore, gives a clearer picture of how the national output is expanding or contracting year on year.

Utility of nominal GDP computation 

Nominal GDP IS used to compare the nation’s output with other factors that are not inflation-adjusted, like its public debt, government budget deficits/ surplus, current account surplus/ deficit, tax collected, etc. When it is said that India is currently the world’s fifth largest economy, and is on track to be the third largest in the next 5-7 years or so, what is being counted is the nominal GDP. Nominal GDP growth for FY25, as per the Budget Estimate, is pegged at 10.5% (Rs 326.4 lakh crore). The BE of total expenditure for FY25 is Rs 48.2 lakh crore, and the same for nominal GDP is Rs 326.4 lakh crore, implying 14.8% of GDP.

To look for in today’s Budget : What is the nominal GDP estimate for FY26, and what is the tax buoyancy envisaged while making revenue projections?

Finance Bill

Finance Bill, presented along with the Annual Financial Statement, details the imposition, abolition, remission, alteration or regulation of taxes proposed in the Union Budget. It also contains other provisions relating to the Budget that could be classified as Money Bill.

A Finance Bill is a Money Bill as defined in Article 110 of the Constitution.

Among the laws that are commonly sought to be amended via Finance Bills each year are Income-Tax Act, Customs Act, FRBM Act, Securities Contracts Regulation Act, Foreign Exchange Management Act, Prevention of Money Laundering Act, etc.

Capital & revenue receipts

Capital receipts include market borrowings, other loans  and also non-debt receipts like proceeds of disinvestment. The receipts cause a decrease in the government’s assets. Revenue receipts include (mostly) tax and non-tax revenues. The latter consists of interest and dividend receipts from investments as well as other receipts for services rendered by the government.

To look for in today’s Budget: What is the estimate for RBI dividend for FY26?  

Capital expenditure

This creates or reduces government’s assets/liabilities, consists of expenditure on acquisition of assets like land, buildings, machinery, equipment, as also investments in shares, etc., and loans and advances granted by the Centre to states/UTs. As per BE, FY25 capital expenditure is Rs 11.1 trillion (3.4% of GDP) versus Rs 9.5 trillion (3.2%) in FY24 (RE). The Budget also uses a term “effective capital expenditure” which includes grants-in-aid that helps creation of capital assets.

To look for in today’s Budget: Is the FY25 capex target estimated to be met? What is the target for FY26; does this indicate a slowing of capex growth?

Revenue expenditure

Incurred for normal running of government departments and services, interest payments on debt, subsidies (6%), etc. These don’t necessarily result in creation of assets.

To look for in today’s Budget: Does it signal any significant rise in spend on healthcare and education?

Tax revenue

This is revenue collected from taxes imposed on income and profits (direct taxes) and those levied on consumption of goods and services/transactions (indirect taxes), and is the main source of the government’s revenue. Indirect taxes include the Goods and Services Tax (GST), excise duty, basic customs duty (tariff) on imports, while personal income tax (PIT), corporate income tax and capital gains tax are among various direct taxes.

As per BE FY25, personal income tax is the single largest non-borrowed receipt item accounting for 19% of inflows, followed by GST (18%) and corporate tax (17%). This is a marked shift from earlier years (in FY11, corporate tax was 2.15 times the PIT.

To look for in today’s Budget: Any significant shift in terms of tax revenue distribution among the various heads?

Gross and net tax receipts

Gross tax receipts include all taxes collected net of refunds, while Net Tax Receipts (NTR) are the actual inflows into the Budget after mandatory devolution of certain part of revenues from the divisible tax pool to states. Revenue deficit is the excess of revenue expenditure over revenue receipts.

Gross fiscal deficit

This is the difference between the total expenditure by way of revenue, capital and loans net of repayments on the one hand, and revenue receipts and capital receipts which are not in the nature of borrowing but which accrue to government.

To look for in today’s Budget: Will the BEs for fiscal deficit (Rs 1.61 lakh crore or 4.9% of GDP) and revenue deficit (0.6% of GDP) be achieved/overachieved? Will there be any revision of the FY26 goal of bringing the fiscal deficit to below 4.5%?  

Revenue deficit/ surplus

This is the excess of revenue expenditure over revenue receipts. If receipts are more than expenses, it is a surplus.

Fiscal policy/ FRBM Act

Keeping the public debt level within reasonable levels and creating the conditions for private enterprise are among the government’s many goals. This calls for an appropriate fiscal policy. India’s fiscal policy is laid out in the Fiscal Responsibility and Budget Management Act, 2003.

A Macro-economic Framework Statement is presented every year to Parliament under Section 3 of the Act, with the Budget. The Medium-Term Fiscal Policy Statement cum Fiscal Policy Strategy Statement is presented to Parliament, setting out the three-year rolling targets for specific fiscal indicators. Though the FRBM targets fiscal deficit of 3% of GDP and elimination of revenue deficit, the targets have been missed in recent years, owing to various contingencies. According to the latest road map, the Centre has to bring down its fiscal deficit to below 4.5% by 2025-26.

To look for in today’s Budget: What is the road map for FY26 onwards? Will there be a shift to a specified trajectory of debt reduction?      

Public debt

It is the total amount, including liabilities, borrowed by the Union and state governments. The debt, serviced out of the Consolidated Fund of India in the Centre’s case, includes a large internal component and a much smaller external debt. While a government-appointed panel had pitched for a debt-to-GDP ratio of 60% (40% for Centre and 20% for states) by FY23,the ratio peaked at 89% in FY21 and was at 81.6% in FY24.