India’s Budget

The Indian economy, despite its resilience and potential, faces a multitude of challenges as it passes through the complexities of a rapidly changing global economic environment.

Persistent inflationary pressures, rising unemployment, and the lingering effects of COVID-19 endemic have strained household budgets and disrupted supply chains. Additionally, the economy grapples with structural issues such as uneven income distribution, inadequate infrastructure, and a growing fiscal deficit.

Global economic slowdown, coupled with geopolitical tensions and fluctuating commodity prices, has further exacerbated these challenges.

Against this backdrop, the Union Budget 2025-26, presented by Finance Minister Nirmala Sitharaman on February 1, 2025, seeks to address these issues while unfolding a roadmap for sustainable economic growth, fiscal consolidation, and inclusive development.

The budget reflects the Modi coalition government’s commitment to economic self-reliance, social welfare, and infrastructure development, aiming to meet expectations of over 1.4 billion people.

The Union Budget 2025-26 outlines a comprehensive economic strategy with a total outlay of INR39.4 lakh crore, emphasizing fiscal discipline, infrastructure development, and social welfare. It identifies agriculture, micro, small, and medium enterprises (MSMEs), investment, and exports as the primary drivers of economic growth, with focus on structural reforms and fiscal prudence.

The fiscal deficit for 2025-26 is estimated at 4.4% of GDP, a significant reduction from previous year’s 5.8%, reflecting the government’s commitment to sustainable fiscal management. The revenue receipts are projected at INR27.3 lakh crore, while capital receipts amount to INR16.4 lakh crore.

Similarly, revenue expenditure is estimated at INR34.9 lakh crore, with effective capital expenditure, including investments in infrastructure, standing at INR15.5 lakh crore.

This allocation underlines the government’s focus on boosting employment and economic growth through increased capital expenditure in critical sectors such as rural development, affordable housing, transport, and digital connectivity.

The key highlight of the budget is its focus on providing relief to the middle class through revisions in direct and indirect tax rates. Income tax exemption limit has been raised to INR12 lakh, with revised tax slabs ensuring relief for those earning up to INR24 lakh annually. The budget also doubles the tax deduction limit for senior citizens from INR50,000 to INR1 lakh, providing additional financial security for the elderly.

The annual limit for Tax Deducted at Source (TDS) on rent has been increased from INR2.4 lakh to INR6 lakh, reducing compliance burdens for taxpayers. These measures are expected to boost disposable income, consumer spending, and savings, thereby stimulating economic activity.

On the corporate front, adjustments in corporate tax rates aim to attract foreign investments and support domestic manufacturing, aligning with the government’s ‘Make in India’ initiative.

Rationalization of Goods and Services Tax (GST) for essential commodities ensures price stability for consumers, though increased indirect taxation on certain goods may offset these benefits.

The budget also places significant emphasis on infrastructure development, with greater allocations for key sectors such as defence, education, agriculture, rural development, and healthcare.

The defence spending stands at INR4.91 lakh crore, reflecting the government’s focus on national security and modernization. Education receives INR2.66 lakh crore, with new scholarships and funding for digital learning initiatives aimed at improving access to quality education.

Agricultural sector is allocated INR1.71 lakh crore, with direct cash transfers and subsidies for farmers to enhance productivity. Rural development receives INR1.28 lakh crore, while health and social welfare programmes are allocated INR98,311 crore and INR60,052 crore, respectively with the aim to uplift vulnerable populations ensuring equitable access to essential services.

The energy sector, critical for sustainable development, receives INR81,174 crore, focusing on renewable energy and reducing import dependency. Urban development is allocated INR96,777 crore, highlighting the government’s commitment to modernizing cities and improving living standards.

In addition to the above, the budget introduces several initiatives to drive investment, employment, and innovation. Urban Challenge Fund, with an allocation of INR1 lakh crore, seeks to transform cities into economic hubs by addressing infrastructure gaps and promoting sustainable urban development.

The Jal Jeevan Mission, extended until 2028, will receive additional funding to achieve universal water supply coverage, ensuring access to clean drinking water for all. The SWAMIH Fund-2, with INR15,000 crore, will expedite the completion of one lakh housing units, addressing housing shortage and boosting the construction sector.

A Maritime Development Fund of INR25,000 crore has been established to finance long-term infrastructure needs in this sector, promoting trade and economic growth reflecting the government’s attention on creating employment opportunities, fostering innovation, and addressing critical infrastructure gaps.

The budget’s borrowing strategy shows commitment to sustainable fiscal management. Borrowings and other liabilities account for 24% of total revenue, demonstrating the need for continued fiscal discipline. Market borrowing would be utilized to fund infrastructure and development projects while minimizing debt burden.

Introduction of asset monetization plans worth INR10 lakh crore aims at unlocking capital for new projects, supporting long-term economic expansion. However, reliance on market borrowings to finance expenditure raises concerns about debt sustainability, particularly in the context of rising global interest rates and currency fluctuations.

The government’s emphasis on borrowing through sovereign green bonds and infrastructure bonds to fund sustainable development projects is a positive step, but increased dependency on external debt may expose the economy to risks.

For the common man, the Finance Bill 2025 presents a mix of opportunities and challenges. While tax relief measures provide financial respite, increased indirect taxes on luxury goods and certain services may have negative effects. Cost of essential goods may decline due to reduced GST, but higher fuel and transportation costs could impact overall household expenses.

The employment prospects may improve with increased investments in infrastructure and manufacturing, but inflationary pressures and rising interest rates could reduce purchasing power. The government’s focus on rural development and MSMEs is expected to generate employment, but effective implementation would be the key to success.

The government’s commitment to digitalization and the promotion of fintech companies could bring financial services to the financially underserved, expanding economic opportunities. Efforts to strengthen banking regulations and oversight of non-banking financial companies (NBFCs) will ensure financial stability.

However, effectiveness of these measures would depend on their execution and regulatory framework implemented by financial authorities.

As India looks to maintain its economic momentum, success of the Union Budget 2025-26 will hinge on strong governance, transparent fiscal management, and the ability to implement proposed reforms efficiently.

Therefore, ensuring that economic growth translates into equitable opportunities for all will be decisive in shaping India’s financial future.

The Modi coalition government’s ability to fulfill expectations of over 1.4 billion people will depend on its dedication to long-term economic reforms, ensuring that the benefits of development reach every segment of society.

Copyright Business Recorder, 2025