Budget 2025: Subhash Chandra Garg is a 1983-batch IAS officer of Rajasthan cadre, who has held prominent positions, including the Finance Secretary of India, Economic Affairs Secretary of India, and Executive Director at the World Bank. In this exclusive conversation with News24’s Akshat Mittal, Garg has talked about the expectations from the upcoming Union Budget, 8th Pay Commission and other economic issues.

Let’s delve deeper into the conversation to gain more insights.

Budget 2025: Excerpts From The Interview

1- What do you expect from the budget 2025?

“A budget outlines how you earn money, how you spend it, and the difference between the two, known as the deficit. India’s GDP, which is the total income of all put together, is Rs 324 trillion (Rs 324 lakh crore). Last year government’s budget was approximately Rs 48 trillion, expected to rise to Rs 52-53 trillion this year. This represents around 18-20% of the country’s total income-related resources being allocated for government expenditure. A budget is typically a document containing all resources, expenditures, deficits put together. Moreover, a fiscal deficit occurs when the government’s non-debt income (taxes, non-tax revenue, and disinvestment) is less than its total expenditures (revenue and capital).”

2- Do you anticipate any changes in the tax rates or slabs?

“For many individuals, the budget is primarily viewed through the lens of taxation, with a focus on potential tax reductions or additional exemptions. In India, approximately 10 crore people file tax returns, but around 7 crore of them don’t actually pay taxes due to the government’s rebate provision. Likewise, only about 3 crore people in India actually pay income tax, and a vast majority of them (around 95%) are salaried individuals. In my opinion, there are three key areas that require prime government intervention.

First: The old tax scheme’s exemption threshold of Rs 2.5 lakh, unchanged for 10 years. In the meantime, there has been more than 100% inflation. Raising this exemption limit from Rs 2.5 lakhs to Rs 5 lakhs is a logical move the finance minister should make.
Second: The maximum tax rate of 30% should kick in from the income of Rs 25 lakhs.
Third: The finance minister should consider merging the two existing tax systems into a single, unified system. Having two tax slabs creates unnecessary complexity, leading to confusion. The old tax scheme remains attractive due to exemptions that offer significant savings, such as deductions on housing loan interest, which can be substantial, especially for large loans. Therefore, the two tax schemes should be merged, retaining beneficial exemptions, to create a unified and simplified system.”

3- What shall be the priorities of government in the budget 2025?

“The budget has three key areas of focus: revenue, expenditure, and fiscal deficit. I’ll identify one priority for each of these segments. Talking about fiscal deficit, it will be around 4.9% this year. The government should prioritize reducing the fiscal deficit to 4.5% next year and also present a roadmap to achieve 3% by 2029-30.

On the expenditure side, the priority should be to optimize capital expenditure by allocating funds to productive and high-impact projects, such as key railway lines and public goods, while avoiding unnecessary freebies and spreading resources too thin. A significant portion of capital expenditure is currently allocated to areas like BSNL, certain railway projects, and defense spending, which is essential but not economically productive.

On the revenue front, reviving the disinvestment and privatization program should be the top priority. The government has around Rs 50 lakh crores worth of stakes in public sector companies, but hasn’t made significant progress in disinvestment over the past 3–4 years. To boost revenue, the government should identify five or six companies for privatization and several others for disinvestment, aiming to raise Rs 1.5 to 2 lakh crores in the next year. This would be a substantial step forward.”

4- Why is government unable to realize the disinvestment targets over the year?

“There are two primary reasons behind this. First is that the Indian government has been consistently reducing its disinvestment targets, from Rs 2.1 lakh crore to a significantly lower amount. In the last budget, the government didn’t even specify the allocated amount for disinvestment and privatization under “miscellaneous capital receipts,” which totals Rs 51,000 crore. Even assuming a target of Rs 30,000-35,000 crore, the government has failed to meet its targets.

Secondly, I think that the government has lost the appetite and the interest in dis-investment. The government appears to have lost enthusiasm for privatization, possibly due to concerns about political viability, as it often faces resistance from employees, state governments, and other stakeholders, and seems unwilling to make tough decisions. Another reason is that the government has shifted its strategic focus from disinvestment to investment, now prioritizing significant investments in sectors such as railways, NHAI, and other public sector initiatives.”

5- The World Gold Council has expressed concerns about a potential hike in gold import duties in the upcoming Budget. How might this affect Indian buyers?

“India’s gold prices are driven by immense demand, but gold is largely imported. As a result, gold prices in India are determined by three key factors: the global gold price in dollars, customs duty imposed by the government, and the profit margin added by jewelers and other intermediaries. In the Budget 2024, presented in July, the government slashed the total customs duty on gold from 15% to 6%. If the government increases the customs duty on gold to 10%, 15%, or 14% in budget 2025, the trade and industry will promptly pass on this additional cost to consumers, leading to a rise in gold prices. Gold prices are primarily driven by international prices, not just duties.

However, If the government increases the custom duty on gold from 6% to 15%, gold prices may shoot up to Rs 1 lakh per 10 grams in very less time after the budget announcement. If the duty remains unchanged, it may take around six months to a year for gold prices to reach that higher level.”

6- What is a realistic and ideal fitment factor for the 8th Pay Commission, considering the NC-JCM secretary’s proposal of 2.86?

“The government may establish a pay commission by March 31st, and historically, such commissions have taken around two years to submit their reports. Talking about fitment factor, NC-JCM can ask for the moon. Fitment factor of 2.86% is asking for the moon, which is impossible. No one will give it anywhere close to it. To determine the fitment factor, the pay commission will consider the basic pay plus Dearness Allowance (DA) as of January 1, 2026. Currently, the DA is 53% (as of July 1, 2024). To calculate the DA till January 1, 2026, two more installments need to be added: one due on January 1, 2025, and another on July 1, 2025. Assuming a 7% increase, the DA for January 1, 2026, would be approximately 60%.

With the starting factor of 1.6, the next step is to determine the percentage increase. Usually, pay commissions have recommended increases ranging from 15% to 30%. The previous pay commission recommended an increase of around 14-15%. In my assessment, the additional fitment factor to be applied to the base factor of 1.6 is likely to range between 10-30%. Taking 20% of the base factor 1.6 or 160, we get 32. Adding 32 to 160 results in a revised fitment factor of 192 or 1.92. If we assume a more generous 30% increase, the calculation would be: 30% of 160 is 48. Adding this to the base factor, we get 208, or a revised fitment factor of 2.08. So, the actual fitment factor is likely to be between 1.92-2.08.

NCJCM’s demand for such a high fitment factor is unrealistic. Pay commissions will have responsible representatives who make reasonable requests.”

7- What are your key expectation from the upcoming budget, given the current economic scenario?

“On the expenditure side, my expectations are that capital expenditure will increase to approximately Rs 12 lakh crores. Current expenditure for the year will be around Rs 10 lakh crores, falling short of the budgeted Rs 11.11 lakh crores. Meanwhile, interest expenditure is projected to rise significantly from Rs 11.6 lakh crores in the previous budget to Rs 30 lakh crores. With these expenditures to be taken care of, the government will not have much space to come up with any very large program.

The government may introduce something in the PM Kisan scheme or launch new initiatives for women, given the growing trend of state-specific programs for women’s benefits, potentially funded jointly by the central government and states. There might be a surprise announcement regarding this, but that is uncertain.”

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