The Union Budget for 2025-26, presented by Finance Minister Nirmala Sitharaman, is garnering significant attention as it aims to balance economic growth with fiscal discipline. Totaling INR 48.5 lakh crore (approximately $585 billion), the budget outlines bold measures to reshape India’s economy amid rising global uncertainties.
One of the pivotal aspects of the budget is its ambitious fiscal deficit target, which has been set at 5.1% of GDP, reduced from 5.8% the previous year. The government projects GDP growth at 6.8% for FY 2025-26, aiming to stimulate domestic consumption through personal income tax cuts, raising exemption thresholds from INR 7 lakh to INR 12 lakh. This move is intended to boost household savings and spending, thereby stimulating demand.
“Our emphasis on capital expenditure remains strong,” Sitharaman remarked during her budget speech. The government has allocated INR 10.5 lakh crore ($127 billion) for capital expenditure, marking a 9% increase over the prior fiscal year. This infusion is expected to create more than two million jobs across sectors like construction and manufacturing.
Tax reforms are at the forefront of the budget, with efforts directed toward alleviating the tax burden on the middle class. Enhanced tax exemption limits are expected to provide much-needed relief to households, promoting consumption at a time when economic growth is imperative.
Infrastructure development remains key, as indicated by the increased allocation for public infrastructure projects. A significant portion of the budget—the highest-ever amount for rail infrastructure—will focus on modernizing over 1,000 train stations, track electrification, and developing high-speed railway networks. The allocation for road infrastructure has also increased by around 7%, with the government prioritizing the Bharatmala Pariyojana project, which aims to improve road connectivity nationwide.
Further ambitions include generating 100 GW of nuclear energy by 2047, supported by a newly launched Nuclear Energy Mission backed by INR 200 billion ($2.2 billion). These initiatives lend credence to India’s commitment to diversify and expand its energy sources as part of its long-term sustainability goals.
The agriculture sector also receives attention, with the government pledging INR 75,000 crore ($9 billion) to the PM-KISAN scheme to benefit approximately 110 million farmers. An additional budgetary allocation of INR 22 lakh crore ($265 billion) has been set to stimulate agricultural credit, ensuring the sector’s growth is resilient and sustainable.
Nevertheless, challenges loom large over India’s economic strategy. One glaring concern is the slower pace of fiscal deficit reduction. While the government has aimed for 4.5% by FY 2026-27, doubts arise about achieving this target, particularly as public debt continues to swell to INR 155 lakh crore ($1.9 trillion).
Healthcare and education sectors, both pivotal to social restructuring, appear to be experiencing low budget allocations. With healthcare funding set at INR 3.1 lakh crore ($37 billion) and education at INR 1.2 lakh crore ($14.5 billion)—an increase of just 6% and 4% respectively—critics argue these amounts fall short of expectations, particularly after the pandemic.
Support for MSMEs, which contribute significantly to job creation and economic activity, lacks substantive backing. The budget provides only INR 50,000 crore ($6 billion) for credit guarantees, potentially undermining the growth and recovery of this important sector.
Critics have pointed out the reduction of welfare spending across various programs. Notably, the food subsidy has decreased by 8% to INR 1.9 lakh crore ($23 billion), and rural employment schemes like MGNREGA experience a cut of 10%, potentially jeopardizing rural economic stability.
Comparatively, past budget allocations paint a picture of overall declining fiscal deficit from 6.8% in FY 2021-22 to the current target of 5.1%. Despite claiming higher capital expenditure levels, the growth rate has noticeably slowed down from the 34% noted back in 2021-22 to just 9% now.
Economists and analysts remain cautiously optimistic. Shalabh Chaturvedi, MD of Case Construction Equipment, noted, “The Union Budget reflects strong commitment to infrastructure and inclusive growth. Enhanced allocations for urban infrastructure pave the way for significant developments.”
There’s also emphasis on the necessity of transitioning to consumption-driven growth, aligning with the government’s broader objectives of enhancing domestic production under the 'Make in India' initiative.
“While the budget stimulates immediate economic activity, questions remain about long-term sustainability and structural reforms needed for extensive growth,” commented Pawan Khatter, aerospace and defense analyst, reflecting concerns over the adequacy of measures toward lasting impacts.
The upcoming years will be pivotal as India navigates its economic framework, balancing both fiscal discipline and the immense necessity to drive growth across sectors, particularly post-pandemic recovery demands.