The Union Budget 2025–26 reinforces India’s commitment to cooperative and competitive federalism, acknowledging the pivotal role of states in achieving Viksit Bharat @2047. Guided by the principles enshrined in the Constitution of India, particularly Articles 270, 275, and 280, the budget allocates financial resources in a manner that empowers states for inclusive and sustainable development.

The strategy is built on four key pillars:

1. Enhanced Devolution of Taxes and Duties

• Constitutional Basis: Article 270 enables the distribution of tax revenue between the Centre and States. The 15th Finance Commission, constituted under Article 280, has recommended that 41% of net Union tax revenues be devolved to states.
• Budget Allocation:
  • ₹14.22 lakh crore is allocated as States’ share in Central Taxes – a significant rise, reflecting the government’s intent to decentralize financial power.
• Objective: Increase states’ flexibility in planning and implementing development projects tailored to regional needs.

2. Special Assistance for Capital Expenditure

• Capital Investment Support Scheme:
  • A special interest-free loan of ₹1.5 lakh crore (for 50 years) is provided to states to encourage capital creation in infrastructure, health, education, and green energy.
• Purpose: Promote productive asset creation at the state level and crowd-in private investment.
• Key Impact Areas:
  • Urban infrastructure (AMRUT, Smart Cities)
  • Energy transition (PM-KUSUM)
  • Connectivity (PM Gati Shakti)

3. Higher Grants-in-Aid and Centrally Sponsored Schemes (CSS)

• Finance Commission Grants:
  • ₹1.32 lakh crore allocated as grants based on the 15th Finance Commission’s recommendations.
• CSS Allocations:
  • ₹5.42 lakh crore allocated for key schemes with state participation, including:
    • PM Awas Yojana (Urban & Gramin)
    • Samagra Shiksha Abhiyan
    • National Health Mission
    • PM Poshan Scheme
    • Jal Jeevan Mission
• Article 275: Empowers the Centre to provide specific-purpose grants to states for welfare of Scheduled Tribes and for other specified purposes.
• Impact: Strengthens social sector delivery at the grassroots, especially in education, health, housing, water, and nutrition.

4. Increased Borrowing Ceiling and Fiscal Space

• Fiscal Deficit Target: Set at 4.4% of GDP for 2025–26, with a medium-term path to bring it below 4.0%.
• Borrowing Facilitation:
  • Gross market borrowings of ₹14.82 lakh crore.
  • Flexibility under FRBM Act for states to borrow within set limits.
  • Additional borrowing of 0.5% of GSDP for reforms in power distribution and urban governance.
• Objective: Maintain macroeconomic stability while allowing states to expand investment in critical sectors.

The Union Budget 2025–26 exemplifies a balanced approach to fiscal federalism—ensuring equitable resource distribution, incentivizing reforms, and enabling state-level infrastructure and social sector investments. The constitutional mandates, Finance Commission recommendations, and structured grants collectively enhance states’ capacity to deliver on the vision of a developed India by 2047.

By leveraging schemes like PM Gati Shakti, Jal Jeevan Mission, and the National Education Mission, along with capital support and tax devolution, the budget fosters collaborative governance, vital for addressing India’s regional disparities and long-term development aspirations.