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Since 2020-21, Finance Minister Nirmala Sitharaman has been steadfast in her commitment to fiscal consolidation while also increasing the allocation for capital expenditure.

In 2020-21, the Union government's fiscal deficit was a staggering 9.2 percent of GDP. By 2023-24, she managed to reduce it to 5.6 percent. The target for this year is to further reduce it to 4.9 percent, with an aim to bring it down to 4.5 percent by 2025-26.

Last year's Union Budget was conservative in its revenue estimates, with actual collections exceeding expectations by about Rs.1 lakh crore. This year, the assumptions underlying the budget appear restrained, with gross tax growth pegged at 10.8 percent, aligning with the assumed 10.5 percent GDP growth. However, this implies a much lower tax buoyancy compared to last year.

The budget projects that direct taxes will grow at a faster rate than indirect taxes, with personal income tax outpacing corporate taxes. Collections from personal income tax are considerably higher than those from corporate tax. Driven by higher receipts from the RBI and other communication services, the government's non-tax revenue is up, including license fees from telecommunication companies and spectrum usage charges. A significant share of revenue comes from the levy of revenue cesses and surcharges.

The Budget states that the Centre's spending is set to grow by 8.5 percent this year, which is less than the assumed growth for the year. Capital spending is expected to outpace revenue expenditure, maintaining the Capex to GDP ratio at 3.4 percent, with the Ministry of Road Transport and Highways and Railways receiving a sizable share of the allocations.

The government's subsidy bill on food, fertilizers, petroleum, and other items is expected to decline further. However, greater clarity is needed on the medium-term debt-deficit trajectory.

The assumptions underpinning the budget math are reasonable. After all, no budget can universally please everyone. Nevertheless, this one promises to provide a sound foundation for the economy in the days to come.