On February 1, 2025, Finance Minister Nirmala Sitharaman unveiled the Union Budget for 2025-26, which is primarily aimed at rejuvenation of the Indian economy, particularly benefiting the middle-class citizens through significant tax relief measures. The budget presentation takes place under the backdrop of economic challenges, as highlighted by India’s Chief Economic Advisor who projected economic growth of 6.3% to 6.8% for the upcoming fiscal year. This forecast creates urgency for the government to implement strategies to stimulate economic activity, especially considering high inflation and the sluggish job market.
The key highlight of this year’s budget was the substantial cut to income tax rates for the salaried middle class. The government raised the income threshold for tax exemption to ₹12 lakh, thereby foregoing approximately ₹1 lakh crore of tax revenue. This generous tax relief aims to boost household disposable income, thereby spurring consumption and stimulating economic growth. Sitharaman underscored the importance of this move stating, “The new structure will substantially reduce the taxes of the middle class and leave more money in their hands, boosting household consumption, savings and investment.”
Alongside personal tax reforms, the budget outlines provisions targeting the agricultural sector and enhancing work within the gig economy. To uplift agriculture—a backbone of the Indian economy—Sitharaman announced the launch of the National Mission on High Yielding Seeds, aiming to empower approximately 1.7 crore farmers with advanced cultivation techniques and improved seed quality. An increase of the credit limit available through Kisan Credit Cards to ₹5 lakh was also introduced. Sitharaman noted, “Underemployment in agriculture will be addressed with support for 1.7 crore farmers.”
For the rapidly growing gig economy, which is projected to employ over 23 million people by 2030, the budget establishes initiatives to formally register gig workers, enabling them to gain access to social welfare programs and healthcare.
Entrepreneurs and startups also received significant attention as Sitharaman announced the creation of a new Fund of Funds amounting to ₹10,000 crore aimed at fostering innovation and supporting startups. This is anticipated to revitalize India’s startup ecosystem, which has been pivotal for job creation and economic diversification. She stated, “Our government will provide more money to promote innovation and push manufacturing and exports.”
Investment plans extended to renewable energy, as the government set aside ₹20,000 crore for nuclear energy initiatives, reinforcing India's transition toward sustainable energy sources. This commitment to nuclear energy, coupled with enhanced allocations for distributed renewable energy projects, positions India as a player committed to both economic recovery and environmental sustainability.
Overall expenditure for the Union Budget is envisaged at ₹50.65 lakh crore, reflecting a 7.4% increase over the previous fiscal. This budget places significant importance on public capital expenditures, as ₹11.21 trillion was allocated toward infrastructure development. This increase is expected to create jobs and stimulate economic activity, aligning with the broader vision of transforming India to Viksit Bharat ('Developed India').
Significant allocations toward healthcare were also made, including plans for establishing 200 daycare cancer centres across India, aimed at enhancing accessibility to medical care for cancer patients. The emphasis on improving healthcare infrastructure was echoed by various health sectors, reinforcing the government's commitment to providing affordable healthcare to its citizens.
Despite the optimism surrounding tax cuts and public spending, there remains caution among economists who warn about potential fiscal risks. Concerns have been raised about the sustainability of tax revenue, especially as the country navigates through public expenditure constraints amid slow economic recovery post-pandemic. Saurav Ghosh, Co-founder of Jiraaf, remarked on this aspect, noting, “The government has put more money in the hands of the taxpayer. It remains to be seen how this plays out with the new Tax Bill.”
The 2025 Union Budget has also drawn mixed reactions across political lines. While the BJP hailed the budget for being pro-middle class and fostering growth, opposition leaders viewed it as lacking the urgency to address entrenched economic problems. Congress Leader Rahul Gandhi criticized the budget as “a band-aid for bullet wounds,” implying discontent with the breadth of its measures against persistent economic grievances.
Looking at the sectors impacted by the budget, MSMEs play a central role, with enhanced credit guarantees and streamlined loan processes anticipated to support more than 10 million registered MSMEs of India. Finance Minister Sitharaman's focus on the MSME sector resonates with experts who regard it as the backbone of employment and economic growth, as evidenced by the feedback received across various sectors including banking and manufacturing.
This year’s budget not only reflects short-term measures to boost consumption but also lays the groundwork for structural changes aimed at enhancing the competitiveness of Indian manufacturing and supporting labor-intensive sectors. It demonstrates the government’s dual focus on social responsibility and fostering economic growth, which is pivotal for delivering on the expectations of over 1.4 billion citizens.
With sustained focus on both consumption and capital expenditure strategies, Union Budget 2025 presents a comprehensive approach aiming to stimulate economic growth and propel India toward achieving its ambitious vision of becoming one of the world’s leading economies by 2047. The road ahead, though promising, will require consistent adaptation and policy measures to navigate the various challenges on the horizon.