Kolkata: Union finance minister Nirmala Sitharaman will present the Union Budget this year on Feb 1, 2026. The budget not only carries numbers but also
a broad political statement once in a year. However, they will appear esoteric if you are not familiar with the concept of a few important terms used in the budget. Here is a compendium of the key ones that Sitharaman will use on Feb 1. If you want to watch the live telecast of the budget presentation, read on to get a grip on the basic concepts.
On another plane, these terms are extremely significant for your wallet since they will help shape the interest rates on loans you apply for to buy that dream house or car or computer. It will also determine how much income tax you are going to pay in the financial year 2026-27 apart from how much the government will spend on vital sectors such as roads, ports, power, education, health and general welfare.
Revenue deficit
Revenue deficit is a measure of whether the government’s income, which mainly consists of tax revenue, is sufficient to cover routine expenses such as salaries, pensions, subsidies and interest payments. What follows a revenue deficit is very significant: it means that if a government is forced to borrow to pay the monthly bills, that borrowing is in sense unproductive, which means these loans will simply keep burdening the exchequer since they will not create any revenue-generating assets. The Modi government is trying to control its revenue deficit, which means the administration is trying to pay for day-to-day expenses from its own income.
Fiscal deficit
Fiscal deficit of a government in any year represents the gap between what the government spends and what it earns in that year. However, it does not include loans taken by the government. The higher the fiscal deficit, the higher the government has to borrow in that year. One, it piles more debt that becomes a liability for the future administrations, and in turn, the people of the country. Two, when the government borrows a lot of money, it reduces the private firms which are also out to borrow from the market. For the private sector companies, it means a higher rate of interest on loans they are going to raise from the market. It also impacts their competitiveness and more expensive goods and services for the consumers.
The budget of 2025 proposed a fiscal deficit of 4.4% of GDP for FY26. If tax collections are weaker, this target can be missed. According to reports, the Centre is keen to rein it within 4% of the GDP in FY27.
Primary deficit
Primary deficit = Fiscal deficit – interest payments. The above formula makes it clear how primary deficit is calculated. It indicates the amount of borrowing needed by the government to maintain current level of expenditure minus old debt. It also signals how much is the government able to fund its day-to-day operations and new projects without resorting to borrowing for interest. It helps assess long-term debt sustainability. The primary deficit target for Budget 2025 was 0.8% of GDP.
Capital expenditure
Capital expenditure is the amount of money spent on building assets that will generate revenue in the long-term. These are usually infrastructure such as power plants, highways, railways, hospitals, schools. These assets are important for future economic growth and the higher the capex — short form of capital expenditure — the better for any government. It also helps generates employment in the economy. Capex was proposed at Rs 10.18 lakh crore for the current financial year.
Revenue expenditure
Revenue expenditure refers to the amount of money spent to fund immediate consumption and these heads can be salaries, subsidies, pensions and administrative costs. Usually, governments try to tilt the scales more towards capital expenditure compared to revenue expenditure.
Nominal GDP growth
GDP growth rates hog headlines regularly and the government has laid a lot of emphasis on the GDP growth rate these days. Real GDP growth is a measure of how much the economy grows after adjusting for inflation. But nominal GDP growth includes inflation. Governments usually plan budgets using nominal GDP. The real GDP growth is expected at 7.4% in FY26. In H1 the Indian economy expanded at 8%. It is significant to remember that the Budget of last year proposed a nominal GDP growth rate of 10.1%. Therefore, there is a gap which will show up in the projected tax collections and shrink the fiscal space for the finance minister for FY27.
Debt-to-GDP ratio
This is an extremely important term. It indicates how large the government’s total borrowing is compared to the economy. If the ratio shrinks, it signals relief for ay government since it signals that the debt is shrinking in comparison to the expansion of the GDP. But if the ratio increases, it means a shrinking fiscal space for the government to plan its expenditure. It also renders the economy more vulnerable to shocks. The Centre wants to bring this ratio to around 50% by FY31.
Income tax (Section 87A)
Section 87A deals with income tax tweaks. Therefore, one should be alert to section 87A tweaks since it allows tax rebate for resident individuals whose total taxable income lies within a specified limit. Going by the Budget of 2025, an individual earning up to Rs 12 lakh a year, won’t have to pay any income tax at all. The finance minister used it to kickstart languishing consumption in the economy. Since the government is keen to boost consumption, this could again be a focus area on Feb 1, 2026.
An important point to remember is that budget figures of a particular year don’t mean much. One has to understand it in the light of comparative figures in the past few years to understand the improvement/failure of government finances.
