Budget 2025-26-wl-3491-Trade-off between Fiscal Consolidation and High Employment-intensive Growth

A large reduction in government capital expenditure growth in 2024–25 and 2025–26 to meet fiscal deficit targets primarily accounts for the recent decline in growth, since capex growth is a key driver of GDP growth. The greater flexibility of the new debt-to-GDP related fiscal consolidation framework should be exploited to restore high government capex and GDP growth. Fiscal incentives to accelerate growth of large, employment-intensive sectors like construction is also necessary for more employment-intensive growth.