Finance Ministry Sets The Stage For 2025-26 Union Budget, Preliminary Talks To Begin This October

The Finance Ministry has kick-started the budget exercise for the fiscal year 2025-26 with the issuance of a 'Budget Circular' on 17 September. The much-anticipated budget is set to be presented on 1 February 2025.

According to the Department of Economic Affairs (DEA), pre-budget meetings, chaired by the Secretary (Expenditure), will begin in the second week of October 2024 and run through mid-November 2024.

“The Budget Estimates (BE) for 2025-26 will be provisionally finalised after the completion of pre-budget meetings,” the circular said.

These meetings will focus on four key issues: the requirement of funds across all categories of expenditure, along with the receipts of ministries and departments; the receipts of departmentally-run commercial undertakings, which are netted against gross expenditure; non-tax revenues, including arrears; and expenditure estimates on a net basis.

In addition to finalising the Budget Estimates for FY 2025-26, the meetings are also expected to finalise the Revised Estimates (RE) for the current fiscal year, FY 2024-25.

Typically, RE figures are based on the trends in receipts and expenditures observed in the first six months of the fiscal year (April-September), while BE projections rely on the data from the first nine months (April-December).

The provisional figures from the pre-budget meetings will be finalised in January once more data becomes available.

After the pre-budget meetings with central ministries, Finance Minister Nirmala Sitharaman is expected to engage with various stakeholders, including industry leaders, economists, and trade unions, likely in late December or early January. Additionally, consultations with state governments will provide further input into the Union Budget.

This upcoming budget is significant as it marks the final year of the 15th Finance Commission (FC) cycle, meaning any liabilities from co-terminus schemes will require prior approval before being carried into the 16th FC cycle.

Crucially, this budget will indicate whether the government has met its target of reducing the fiscal deficit to 4.5 per cent of GDP (gross domestic product).

The fiscal deficit, which represents the shortfall between the government's total revenue and expenditure, highlights the borrowing needs of the government. The government has pledged to reduce the fiscal deficit to 4.5 per cent of GDP by 2025-26, with a target of 4.9 per cent for 2024-25.

Significantly, this may be the last budget where the fiscal deficit is presented as a specific figure. From FY 2026-27 onwards, the focus is expected to shift toward reducing the debt-to-GDP ratio, with the fiscal deficit reported within a range rather than as a single number.

In her July 2024 budget speech, Sitharaman emphasised the importance of this fiscal consolidation strategy, stating, "The fiscal consolidation path announced by me in 2021 has served our economy very well, and we aim to reach a deficit below 4.5 per cent next year. The Government is committed to staying the course. From 2026-27 onwards, our endeavour will be to keep the fiscal deficit each year such that the Central Government debt will be on a declining path as percentage of GDP."