The Labour Secretary has gone. The Triage Sheet is still on the desk, three of its forty lines filled, and nine hours remain. The Finance Secretary does not look at it. The Secretary puts down two folders, A and B, and a single page headed with one line: What is left after commitments is the whole of your freedom.
“Every promise you made before tonight is a claim on the same revenue,” the Finance Secretary says. “Start with what the Centre owes, then what it has already agreed to pay.”
The Centre's ledger, 21 October 2026
- Deficit. 9.2 percent of GDP in FY21, the pandemic year. 4.4 percent in the revised estimate for FY26. 4.3 percent budgeted for FY27.
- Debt. 56.1 percent of GDP in the FY26 revised estimate, 55.6 percent budgeted for FY27, and a stated target of 50 percent, give or take one point, by 2030-31.
- Interest. About 36.8 percent of the Centre’s net revenue receipts in FY25.
- Revenue spending, FY26 budgeted, Rs lakh crore. Pay 3.52. Pensions 2.77. Interest 12.76. Defence 4.92. Major subsidies 3.83. Total 39.44.
The bottom row of the Centre’s own table is the one to read twice. The Survey calls salaries, pensions, interest and defence committed in nature. Add those four lines and you get Rs 23.97 lakh crore of the Rs 39.44 lakh crore, about 61 percent. Add the major subsidies and it is Rs 27.80 lakh crore, about 70 percent. That is your arithmetic on the Survey’s table, not a figure the Survey prints.
The deficit has nearly halved, from 9.2 percent of GDP in FY21 to 4.8 percent in FY25 and 4.4 percent for FY26, and the Survey notes that capital spending is up from an average of 1.7 percent of GDP before the pandemic to 2.9 percent. Both are real. Neither changes the interest line, which grew from Rs 8.05 lakh crore in FY22 to Rs 12.76 lakh crore in the FY26 budget.
The IMF adds three things the Centre’s table leaves out. The IMF counts contingent liabilities, guarantees among them, at 5.6 percent of GDP. Debt, taking Centre and states together, is projected to fall to about 77 percent of GDP by 2030-31, with the risks leaning upward. And most of it is owed in rupees, over long terms, at an interest rate that has been lower than the growth rate.
On 24 July 1991 a Finance Minister told the Lok Sabha that the Centre’s fiscal deficit had passed 8 percent of GDP in 1990-91, and that interest payments took almost 20 percent of the Centre’s total expenditure. The FY25 share is 36.8 percent of net revenue receipts, but the two figures use different denominators and are not a like-for-like comparison.
Now the states. The Finance Secretary turns the second page of A.
The states' ledger (A, continued)
- Liabilities. States and Union Territories together owe about 28.1 percent of GDP in FY25.
- Committed spending. Salaries, pensions, interest and subsidies took about 62 percent of States’ revenue receipts in FY24.
- Cash transfers without conditions. About Rs 1.7 lakh crore in FY26, mostly to women. The number of states running them rose more than fivefold between FY23 and FY26, and about half of those states are in revenue deficit.
- Revenue deficit. The states’ combined revenue deficit rose from 0.4 percent of GDP in FY22 to 0.7 percent in FY25.
- Finance Commission. The 16th Commission reported on 17 November 2025. The Centre accepted its recommendation to keep the states’ share of the divisible pool at 41 percent, and provided Rs 1.4 lakh crore of grants for FY27.
The Survey is even-handed about the transfers. It cites a study of seven states in which they make up 11 to 24 percent of the monthly income of female casual labourers. It cites an NBER review of 115 randomised evaluations, which found that unconditional cash improves consumption and food security but does not reliably improve child nutrition or schooling. And it makes the budget point: many such schemes lack sunset clauses or periodic reviews, and when pressure rises, capital spending is what gives way.
You would not need this folder if the Centre could fix the states’ ledger. It cannot. The IMF recommends extending the debt anchor to the states, an independent fiscal council, and consolidation led by revenue.
On 1 January 1994 China’s tax-sharing reform raised the centre’s share of revenue from 22 to 55.7 percent. Spending duties mostly stayed with the localities. The scholar Shaoguang Wang blames those unassigned duties, and the extra-budgetary funds the reform left alone, for what the localities did next. What they did is the next chapter’s subject.
Folder B holds no numbers. It holds three answers to one question: when the arithmetic forces an adjustment, who pays?
Who bears the adjustment
- Trim subsidies. The Economic Survey’s line: committed spending is large, so the discretionary part, mainly subsidies, is where room has to come from.
- Raise revenue. The IMF’s line: broaden the tax base, and lead consolidation with revenue.
- Borrow to build. A position held by growth-first economists: with interest running below growth, the Centre could carry more debt for infrastructure. The interest-below-growth finding is the IMF’s; the conclusion is theirs, not the IMF’s.
The three do not add up to one plan, and the third has to answer the 36.8 percent of net revenue receipts that interest already takes. Each moves the bill to a different payer: the poor household that gets the grain, the taxpayer, the next government.
The 2016 amendments obliged Parliament to compensate states for five years and gave them two-thirds of the weighted votes in the GST Council. The compensation ended in June 2022, and states’ GST revenue stayed below the roughly 3 percent of state GDP that the taxes it replaced had raised.
The page with one line on it is still blank. The Finance Secretary slides it across.
You must choose. If your campaign made a promise this ledger cannot carry alongside the rest, you write its name on the page and strike it for now. The folders do not say which promise it is. That is a cost you pay tonight, in front of no one.
You then put a sunset on the other kind of promise: every unconditional transfer your government launches or extends carries an end date and an exam. The Survey itself notes that many such schemes lack both, so you are asking nothing of the states that the Centre’s own economists have not already asked. The rule leaves alone what the Survey calls committed in nature: pay, pensions, interest and defence. It reaches only the transfers that began as choices, and so only the part of the ledger where a choice is still open. Applying it to the Centre’s schemes first makes it a rule you keep, not one you hand down.
The second decision has a price. If you extend the debt anchor to states, as the IMF suggests, the finance ministers of states governed by your opponents become your counterparties. You will meet them at 05:30.
Two lines go down on the Triage Sheet. The first is R10, the Sunset Rule. The second is the machinery to keep it: a fiscal council, Finance Commission grants tied to conditions, and a compensation fund, funded before any change to rates or the tax base.
Triage sheet: 5 of 40 lines filled Door D3 · closedWhere does a state's money come from, and what does each source cost later?The Finance Secretary leaves the folders and takes the page. The answer to its door begins far from this desk, on a railway platform in Shenzhen in 1992. Seven and a half hours to the microphone.