India – a very sound budget
The Indian Government has delivered a budget somewhat tighter than market expectations. The fiscal deficit of 4.8% for FY25 was 10bps lower than expectations while the FY26 deficit is forecast to decline to 4.4%. Further out, the Government announced that the Government Debt to GDP ratio is expected to fall from 57% to 51% of GDP by FY2031. This implies a gentle fall in the budget deficit to perhaps 3.5% by that date.
There was a distinct pivot away from infrastructure spending towards encouraging personal consumption. Government CAPEX will grow just 10% in FY26 to Rp11.2tr having more than doubled over the past four years.
Personal income tax has been cut across the board. The lower threshold, below which no tax is paid, has been raised from Rs700,000 to Rs1.2mn ($13,800). Based on the revised tax rates an individual will see their tax bill fall on average by Rs30,000 while those earning Rs2.4mn will see their tax fall by Rs110,000. In total the Government expects tax saving of Rs1.0tr ($11.5bn) spread across some 35m taxpayers.
The Government also enacted significant cuts to import tariffs signalling it would not shelter domestic businesses behind protectionist measures. The changes mean that India’s average tariff is now 10.66%, down from 11.65% according to Sanjay Kumar Agarwal, Chairman of the Central Board of Indirect Taxes and Customs.
Potentially a smart move given Trump’s current agenda.
In common with most emerging markets currencies, the Rupee has had a rough ride over the past few months, but the underlying sound management of the economy must be the envy of many in the West (France, Germany, the United Kingdom) but also in the East (China).
India must be one of the few major economies in the world where Government debt remains below 60% of GDP. Readers will recall that 60% was once the line in the sand drawn in the Maastricht Treaty across the European Union. No longer.
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