It is not that the Budget is not important. It is.

For bond markets and the wonks who work there. Fiscal movements amounting to a few basis points can affect billions of rupees in money markets.

For high-net-worth individuals and companies that tend to lose or gain significantly based on sector/slab specific announcements. And perhaps for equity markets – but only in the short-term. Long-term, there are many factors which drive them.

But should it really matter for the people or political economy at large?

It is not that the Budget is not important. It is.

For bond markets and the wonks who work there. Fiscal movements amounting to a few basis points can affect billions of rupees in money markets.

For high-net-worth individuals and companies that tend to lose or gain significantly based on sector/slab specific announcements. And perhaps for equity markets – but only in the short-term. Long-term, there are many factors which drive them.

But should it really matter for the people or political economy at large?

There was a time, before the Goods and Services Tax (GST) was implemented, when the government’s decision on union excise duties would decide the prices of a whole lot of goods. Not anymore. That prerogative is now the GST Council’s. Sure, custom duty slabs are still in play, but the overall price impact is not as big as it used to be.

What about income tax payers? They are not as significant a number as they are made to be, although they do get a disproportionate share of media coverage.

The numbers speak for themselves. The Income Tax Department shares break-up of direct tax data with a lag. Latest available statistics for Assessment Year 2023-24 (fiscal year 2022-23) show that out of the 75.4 million individual income tax returns (ITRs) filed, 47.3 million involved no payment of tax. Just about three percent of them, less than 2.4 million, accounted for more than 50% of the total tax payable. The skew becomes even bigger once business incomes are factored in. The 2024-25 Budget says that just 678 companies out of 1025717 had a share of 55% in total corporate tax liability in 2021-22.

Direct taxes are more than half of the government’s gross tax revenue. The numbers above show us how narrow our direct tax base is. Does the skew in direct tax collections give this small cohort a disproportionate voice in budgetary calculations or political economy at large? They would like it to be this way. But a universal franchise democracy where the majority is anything but economically secure, also has political imperatives. Put otherwise, they may have a disproportionate share of media coverage; but they have little political influence.

India spends a lot of money, at least relative to its revenues, on what can broadly be described as welfare measures. The spends include those on a large food security programme, other subsidies and a plethora of centrally-sponsored schemes aimed at helping the poor. They have been growing for political considerations.

How adequate are tax collections to finance these schemes? A comparison can put things in perspective.

The 2024-25 Budget projected income tax collections of ₹11.87 lakh crore. Out of this, the centre would have to share ₹4.31 lakh crore with the states as per India’s fiscal federalism requirements, leaving ₹7.56 lakh crore with it. This number is about 30% of the Centre’s net tax revenue. If one were to add the money spent by the union government on food and fertiliser subsidy, MGNREGS, PM-KISAN and rural and urban heads of Pradhan Mantri Aawas Yojna, the number comes to about ₹6 lakh crore almost 80% of the income tax collections which the Centre can keep. A government needs to do a lot more than subsistence level welfare. People remember this only once in a while -- like when the Chinese beat the Americans in AI.

This is just one example, but it makes perfectly clear the precariously inverted pyramid of India’s fiscal balance. The government is banking on a very narrow tax base to provide bare minimum support to a large number of very poor people. Both sides of this spectrum keep demanding that the balance shift in their favour. The rich want tax cuts and the poor more support. The Budget is when this clamour for favourable rebalancing reaches its peak.

The only way this balance can come closer to sanity is by expanding the base of tax payers which will require boosting mass incomes in a big way. Doing this, to be fair, is beyond a budget’s purview, unless it makes some radical changes to the overall economic framework. Very few budgets in India have done that. This is the frustration which is often vented in terms of the budget or economic policy at large not doing enough on the structural reforms front.

What explains the fact that this frustration continues to linger after 10 years of a government which was committed to big-bang reforms? Parliamentary strength has never been a problem for this government. Barring the exception of farmers’ protest against the now repealed farm laws in its second term and the resistance to land acquisition law amendments in its first term, there has been very little opposition in terms of extra-parliamentary resistance too.

There can be only three logical explanations for this: the government cannot think of any such reforms, the existing political economy framework does not offer it any incentives to do such reforms or there really isn’t much left to be done. The third is a deeply troubling thought because it means that Indian economy will continue to grow in this skewed manner. We really ought to debate between the first and the second. But that will only happen if we get over our obsession with the budget which can only distribute what the economy generates. It is the classic case of missing the woods for the trees.

Roshan Kishore, HT’s Data and Political Economy Editor, writes a weekly column on the state of the country’s economy and its political fallout, and vice-versa.