I.              India’s Fiscal Consolidation Journey:

Context

• The article reviews the Government of India’s fiscal performance for FY 2024–25 (FY25) based on provisional data.
• It discusses trends in deficit management, capital expenditure, revenue collection, and upcoming policy challenges relevant to macroeconomic stability and fiscal federalism.
• Also evaluates implications for the fiscal year FY26.

Fiscal Performance in FY25: Mixed Outcomes

• Fiscal Deficit:
• Stood at ₹15.77 trillion, slightly above the Revised Estimate (₹15.7 trillion).
• As a percentage of GDP, contained at 4.8%, meeting targets aided by higher nominal GDP.
• Revenue Deficit:
• Reduced to ₹5.7 trillion, below the Revised Estimate of ₹6.1 trillion.
• At 1.7% of GDP, this marks a 17-year low and improvement from the 1.9% target.
• Capital Expenditure (Capex):
• Surpassed expectations, reflecting a stronger focus on infrastructure.
• April 2025 saw a 61% year-on-year rise in capex, reaching ₹1.6 trillion.

Revenue and Receipt Challenges

• Tax Revenue Shortfall:
• Gross tax collections missed FY25 targets by ₹0.6 trillion.
• For FY26, tax revenue needs to grow at 12.5% (up from an earlier 10.8% forecast) to meet targets.
• Higher RBI Dividend Transfer:
• RBI’s dividend to the government exceeded budget estimates by ₹0.4 trillion, providing some relief for FY26.
• Miscellaneous Capital Receipts:
• April 2025 receipts were 46% of the FY26 budget estimate, compared to none in April 2024, signaling positive momentum.

FY26 Outlook: Optimism with Caution

• Nominal GDP Revision:
• FY25 nominal GDP was 2% higher than the initial advance estimate.
• Despite a lower nominal growth forecast of 9% for FY26 (by ICRA), the fiscal deficit can be kept at 4.4%, helped by a larger base.
• Capex Momentum:
• Capital expenditure might exceed budget estimates by ₹0.8 trillion, totaling ₹12 trillion, supporting continued public investment.
• Expenditure Pattern:
• FY26 will require faster growth in revenue expenditure but slower capex growth, due to front-loaded spending in April.

Emerging Fiscal Policy Considerations

• Finance Commission Report:
• The 16th Finance Commission’s upcoming recommendations will reshape fiscal relations between Centre and States for the next five years.
• Geopolitical & Defence Spending:
• Rising global tensions may lead to increased defence budgets, potentially crowding out development spending.
• 8th Pay Commission Impact:
• The timing of the Pay Commission award may strain central finances and influence State fiscal policies.
• GST Compensation Cess:
• The likely end of GST compensation cess in its current form raises concerns about future revenue sharing between Centre and States.

II.            Serving Justices, But Not Justice

Context

• The Indian judiciary is widely regarded as the guardian of constitutional morality and a trusted institution.
• However, recent scandals have damaged its credibility, with the case of Justice Yashwant Varma—where sacks of cash were found during a fire at his official residence—highlighting deeper issues.
• The problem extends beyond allegations of corruption to the lack of transparency in the judiciary’s internal accountability system, known as the ‘in-house procedure’.

Justice Varma Controversy: Indicative of a Bigger Issue

• On March 14, a fire at Justice Varma’s residence led to the discovery of half-burnt sacks allegedly containing cash.
• He was swiftly transferred and relieved from the Delhi High Court; later, an impeachment recommendation was made based on a judicial inquiry.
• Key evidence like police reports and inquiry findings remain undisclosed.
• The sacks of cash mysteriously disappeared, allegedly removed by Varma’s staff, raising doubts about investigation integrity.
• Questions about why evidence wasn’t preserved and law enforcement’s role remain unanswered, hidden behind judiciary secrecy.

‘In-House Procedure’: Institutionalized Lack of Transparency

• This informal judicial system handles misconduct allegations internally by judges alone, with no public insight or accountability.
• Key issues:
• No public disclosure about whether inquiries happen or their results.
• No adherence to legal or due process norms.
• No external oversight or appeal mechanism.
• The judiciary demands accountability from others but shields itself, undermining its legitimacy.

Past Cases Reflecting Secrecy and Impunity

• Justice Ramana (2020): Serious allegations dismissed without explanation; no public inquiry records.
• Sexual Harassment Allegations against CJI Ranjan Gogoi (2019): Inquiry by peers cleared him without complainant’s legal representation; complainant reinstated only after his retirement, implying procedural flaws.
• Justice Surya Kant: Despite corruption and abuse allegations, no public investigation exists, yet his career remains unaffected, showing in-house system’s tendency to overlook controversies.

III.          India’s Complex Positioning in the Bay of Bengal

Context

• India’s economic ties in the Bay of Bengal are growing, with rising trade volumes and major eastern ports like Visakhapatnam, Paradip, and Haldia seeing steady cargo increases.
• The BIMSTEC Maritime Transport Cooperation Agreement signals progress toward regional integration.
• However, rising geopolitical tensions, especially with Bangladesh, threaten India’s leadership ambitions in the region.

Withdrawal of the Transshipment Facility: Strategic Message or Logistics?

• In April, India suddenly ended a transshipment facility allowing Bangladesh to route exports through Indian ports.
• India cited congestion and delays as reasons, but the move coincided with diplomatic friction after Bangladesh’s interim Chief Adviser called India’s Northeast landlocked and described Bangladesh as its maritime gateway.
• This clashed with India’s narrative of the Northeast as a key regional connector, not dependent on Bangladesh.
• Bangladesh viewed India’s action as retaliatory, especially amid Dhaka’s growing engagement with China, interpreting the move as economic pressure rather than logistics.

India’s Maritime Push and Contradictions

• India’s Sagarmala programme invests heavily in port and coastal infrastructure to boost trade, with eastern seaboard trade more than doubling in the last decade.
• BIMSTEC aims to harmonize customs and improve multimodal connectivity benefiting India and landlocked neighbors like Bhutan, Nepal, and Myanmar.
• India’s unilateral transshipment withdrawal contrasts with this cooperative spirit.
• For Bangladesh’s export-driven economy, particularly its garment sector, losing access to Indian ports raises costs and uncertainties, as alternatives are less feasible.

Potential Fallout

• Trade tensions escalated when India imposed restrictions on certain Bangladeshi imports, requiring them to enter via select seaports instead of easier northeastern land routes.
• India justified this as retaliation for Bangladesh’s restrictions on Indian yarn imports, but since India’s transshipment rollback came first, Dhaka sees India’s actions as heavy-handed.
• Such tit-for-tat trade barriers risk undoing regional cooperation progress.
• While India warns Bangladesh against aligning too closely with China and Pakistan, Bangladesh’s diversification of foreign policy is its sovereign right.
• Using trade as a geopolitical tool risks turning economic collaboration into rivalry, undermining the very goals of BIMSTEC and related efforts.

Risks to Regional Trust and Leadership

• Neighboring countries like Myanmar, Thailand, and Sri Lanka are watching closely.
• The concern is less about India’s influence—which is expected from a major power—and more about the politicization of trade infrastructure that was once neutral and cooperative.
• India’s advanced port infrastructure and multimodal transport capacity are regional strengths, but material power alone won’t secure leadership.
• Trust, fairness, and consistency are crucial in a historically fragmented region.

Way Forward: Rebuilding Trust and Clarifying Policies

• The Bay of Bengal has huge potential as a link between South and Southeast Asia, especially if a BIMSTEC Free Trade Agreement is successfully implemented.
• But strategic anxieties and nationalist rivalries could derail cooperation if economic policy is overly politicized.
• India could present the transshipment facility withdrawal as temporary and establish clear, rule-based criteria for reinstatement.
• Creating a depoliticized, predictable mechanism for trade facilitation would reassure Bangladesh and reinforce India’s standing as a responsible regional leader.