The Union Budget for 2025-26 presents a significant shift in policy, offering a mix of tax relief, industry support, and strategic investments designed to stimulate economic growth. At its core, the budget acknowledges agriculture as a crucial sector of India's economy while also addressing the growing importance of MSMEs (Micro, Small, and Medium Enterprises) and providing relief to taxpayers.
One of the most notable changes is the revision of the income tax threshold. The new budget exempts a large section of taxpayers earning up to Rs 12 lakh from paying taxes. This move could benefit around 7 crore out of 10.4 crore taxpayers and signals a shift away from the policies of the previous NDA government, particularly the 2019 corporate tax cuts, which boosted profits but failed to stimulate broader economic growth. While this change is a positive step for many, it comes with caveats, as individuals with incomes exceeding Rs 12 lakh will still face significant tax burdens.
Finance Minister Nirmala Sitharaman's presentation of the budget has raised expectations, especially with her focus on agriculture. However, subsidies in this area have been reduced to their lowest levels in years, and those with incomes above Rs 12 lakh will still be subjected to taxes above the Rs 4 lakh exempted level. The budget also addresses international trade tensions by reducing duties on high-end motorcycles like Harley-Davidson, aligning with global concerns raised by former U.S. President Donald Trump over India's tariff policies.
Politically, the budget appears tailored to address the upcoming Delhi and Bihar elections, with measures aimed at appealing to the salaried class and small business owners, particularly in Delhi, and projects that could benefit Bihar. These include infrastructure investments like new greenfield airports, road and power projects, medical colleges, and IIT expansions in Patna, aiming to bolster economic activity in the state. However, whether these measures will alter political loyalties remains uncertain.
On the subsidy front, the government has reduced its spending significantly, with the total subsidy allocation for 2025-26 at Rs 426,216 crore, the lowest in six years. This reduction is largely due to a decrease in foodgrain disbursements, with the food subsidy now budgeted at Rs 203,420 crore. This cut may disproportionately affect the poor, as the government reduces its procurement and stockpiling of foodgrains.
Despite this, rural areas are still expected to see some benefits from the government’s focus on various agricultural schemes, including the National Edible Oil Mission, a pulses mission, and a rise in Kisan Credit Card limits. These measures aim to boost rural incomes and self-sufficiency. Additionally, the government has allocated Rs 60,000 crore for food exports, reflecting a desire to expand India’s global presence in the agricultural sector.
The MSME sector receives significant attention in the budget, with a Rs 2250 crore booster shot aimed at enhancing exports and providing more financial support. The loan guarantee for MSMEs has been increased to Rs 10 crore, which should help stimulate growth in this critical sector that contributes significantly to India’s export performance. The hope is that expanding the MSME sector will lead to job creation, with some companies already crossing Rs 500 crore in revenue.
The budget also takes steps to support consumption, with an Rs 1 lakh crore income tax cut, and a focus on sectors like electronics manufacturing, healthcare, and tourism. The National Manufacturing Mission aims to generate 2.3 million jobs, and a focus on 10,000 startups could further foster innovation and employment opportunities. However, the infrastructure spending in the budget remains a point of contention. While Rs 10.18 lakh crore has been allocated for infrastructure projects, some critics argue that the focus on high spending may lead to inefficiencies and losses due to unused or poorly executed projects.
The government has also projected a fiscal deficit of 4.4%, with borrowings set at Rs 11.5 lakh crore and capital expenditure pegged at Rs 11.21 lakh crore. Although these figures align with previous projections, there are concerns about the long-term impact of such high levels of borrowing, especially in sectors like railways, which has seen its budget frozen at Rs 2.55 lakh crore for 2025-26. Similarly, the defense budget has been modestly increased to Rs 6.81 lakh crore, while education and healthcare allocations have seen slight increases.
Healthcare, in particular, focuses on anti-cancer initiatives and efforts to build a more resilient health infrastructure, but questions remain about the sufficiency of these measures in addressing the country’s broader healthcare challenges.
Despite these strides, the budget leaves some critical issues unresolved, particularly in foreign direct investment (FDI) and foreign portfolio investment (FPI), where uncertainty still looms. The FMCG sector, however, remains optimistic, with major players like Godfrey Phillips, Britannia, Hindustan Unilever, and ITC seeing positive stock market responses following the budget announcement.
In conclusion, the Union Budget for 2025-26 sets a new direction for India’s economic strategy, with a focus on supporting agriculture, MSMEs, rural incomes, and consumption. While it promises substantial investments in infrastructure and key sectors, concerns about subsidy cuts, tax burdens, and fiscal discipline remain. Ultimately, whether the budget can deliver on its promises will depend on its execution and the political response to its various provisions.
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