The Union Budget for 2025-26, presented by Finance Minister Nirmala Sitharaman, has sparked discussions across the economic spectrum. With significant adjustments to taxation and capital expenditure planned, the budget aims to reinforce the government's commitment to both growth and fiscal prudence.
One of the standout features of this Union Budget is the unprecedented tax relief for the middle class. An estimated one lakh crore rupees will be granted as tax benefit for individuals earning up to 12 lakh rupees annually, alleviating financial pressure on households amid challenging economic conditions. This measure is anticipated to stimulate consumer spending, with experts noting it could potentially boost overall consumption levels.
While the government's focus on tax reforms is noteworthy, it is equally committed to capital expenditure. The capital expenditure for FY25 was initially budgeted at Rs 11.1 lakh crore but fell short at Rs 10.2 lakh crore. Nevertheless, the FY26 target is projected at Rs 11.2 lakh crore, marking a 10% increase. Inclusive of government grants to states, the overall expenditure will rise to Rs 15.5 lakh crore, reflecting a 17.4% year-over-year increase. Such growth signals the government's dedication to enhancing infrastructure and economic development.
Despite the anticipated dip in public capital expenditure from the market, the budget's enhancements to capital investment are expected to yield long-term benefits. The fiscal deficit is projected to hover around 4.4% for FY26, with projections of nominal GDP growth at 10%. This cautious optimism suggests there's potential for the Reserve Bank of India (RBI) to enact rate cuts, likely supporting investment and consumption.
During her presentation, Finance Minister Sitharaman stated, “The budget strives to strike the right balance between growth initiatives and fiscal discipline,” which echoes the government's approach as it tackles the dual challenge of stimulating growth and managing the fiscal deficit. The budget constitutes significant progress from the fiscal deficit of 9.2% recorded during the peak of the pandemic. Over the past four years, the government has effectively halved this deficit, thereby demonstrating its capability to facilitate fiscal stimulus alongside prudent financial management.
Beyond tax cuts and borrowing plans, the budget outlines new measures aimed at pivotal sectors. Among these, the enhancement of Kisan Credit Card (KCC) loan limits from Rs 3 lakh to Rs 5 lakh stands out. This change could improve access to credit for around 7.7 crore farmers, demonstrating the government’s commitment to supporting agricultural growth.
The Medium, Small, and Micro Enterprises (MSME) sector, characterized as the backbone of the Indian economy, is also set to receive increased assistance. The permissible investment limit for MSMEs has risen from Rs 50 crore to Rs 125 crore, alongside doubling the credit guarantee cover for loans from Rs 5 crore to Rs 10 crore. These adjustments aim to fortify the MSME sector, which has historically played an integral role in employment and economic advancement.
Recognizing the significant contributions of MSMEs to both manufacturing and exports, Sitharaman said, “These budget measures will give them the confidence to grow and generate employment for our youth.” Such sentiments reflect the government's investment focus extending beyond immediate relief to long-term economic sustainability.
The budget also outlines major investments—around Rs 11 lakh crore—dedicated to infrastructure development. This considerable allocation indicates the government’s commitment to enhancing the country’s infrastructure, aiming for improvements across roads, railways, and urban development.
While there is considerable optimism surrounding the budget outcomes, experts have raised questions about the role of the private sector. Will businesses respond to the conducive environment with increased investment to help achieve the ambitious growth rates of 7-8% targeted by the government? The Economic Survey forecasts growth at 6.8%, stressing the need for sustained growth of around 8% to realize India’s aspirations as a developed nation.
Among experts, there remains cautious optimism. Analysts suggest the budget's provisions could instigate positive market reactions because of the alignment with growth-oriented policies and fiscal strategies. FINER, the Federation of Industry and Commerce of the North Eastern Region, lauded the budget as “balanced and forward-looking,” highlighting its significance for regional connectivity and tourism.
It remains to be seen, as one analyst put it, whether “the budget measures will deliver higher growth.” Yet, the government’s fiscal approach, targeting both development and sustainability, certainly signals its intent to forge a path toward a 2047 “Viksit Bharat” or developed India.
Overall, as the discussions around this budget continue, it will be pivotal for stakeholders across sectors—both public and private—to engage actively and collaboratively to maximize its potential impacts on India's economy.