New Delhi: On February 1, 2025, Finance Minister Nirmala Sitharaman presented India’s Union Budget for 2025-26, marking the eighth consecutive year she has done so. The budget reflects the government's commitment to reviving the domestic economy amid challenging global circumstances by allocating significant resources to key sectors including agriculture, industry, healthcare, and education.
This year’s budget displays a conscious shift of priorities, with the ministry of external affairs seeing substantial cuts—officials allocated Rs 20,516.61 crore to the ministry, down from last year's revised estimate of Rs 25,277.20 crore. Harsh V Pant, Vice-President (Studies and Foreign Policy) at the Observer Research Foundation, commented, “One way of looking at it is the government prioritizing revival of the domestic economy.” He emphasized the importance of strengthening local growth to maintain India’s position on the global stage.
The Union Budget demonstrates the government’s strategic focus on enhancing domestic strategies to confront challenges posed by external conditions. The initiatives proposed under this budget aim to bolster agriculture, micro small and medium enterprises (MSMEs), and infrastructure, showcasing the government’s commitment to creating jobs and fostering economic stability.
Significant allocations under the budget also aim to address fiscal deficit concerns, with the government targeting to reduce it from 4.8% to 4.4% for the upcoming fiscal year. Dissecting these allocations reveals reductions across multiple facets, including the “Aid to Countries” category under the External Affairs Ministry. The funding for this area totals Rs 5,483 crore, which is lower than the previous year's allocation of Rs 5,806.48 crore.
Among the various allocations specified, Bhutan continues to be the biggest beneficiary of India's development aid, receiving Rs 2,150 crore, down from Rs 2,543.48 crore last year. Meanwhile, Nepal retains its previous year’s funding of Rs 700 crore, and aid to the Maldives has seen increases amid the nation’s economic challenges, rising from Rs 470 crore to Rs 600 crore as geopolitical dynamics shift with notable investments from China and Turkiye.
With the economic backdrop calling for domestic resilience, the budget also addresses tax reforms to alleviate the financial burdens impacting the middle class. The new income tax regime significantly raises the tax-free income threshold, aiming to provide some relief for household purchasing power eroded by wage stagnation and inflation. Delivering her budget speech, Sitharaman outlined, “Nil tax for annual income up to Rs 12 Lakh”—an increase from Rs 7 lakh to Rs 12 lakh, significantly enhancing disposable income for many households.
Further expansion includes increasing the basic exemption limit from Rs 3 lakh to Rs 4 lakh and raising senior citizens' tax benefits from Rs 50,000 to Rs 1 lakh. Such efforts demonstrate the government’s proactive stance to reinvigorate the economy through improved consumer capabilities.
Despite these positive moves, analysts have voiced concerns about the budget's broader economic impacts. The government’s tax relief measures come at the potential cost of foregone fiscal revenues estimated at Rs 1 lakh crore. Questions arise about how these cuts will impact capital expenditure—central to economic growth and infrastructure development.
The budget also places substantial emphasis on the growing gig economy—Sitharaman announced new identification cards for one crore gig workers, aiming to extend social security benefits to those engaged with platforms like Swiggy and Zomato. This initiative recognizes the sector's rapid growth and the need for safeguarding this workforce.
The tax reforms also encompass promises to simplify compliance. The government intends to introduce a transparent new income tax bill which is aimed at simplifying tax filing processes for both taxpayers and tax administrators alike.
Looking forward, Budget 2025-26 is positioned as pivotal for the country’s economic development pathway. While it introduces significant structural changes expected to increase consumer spending, experts indicate caution, advising against neglecting fiscal prudence. The government’s balancing act will involve stimulating growth through these immediate relief measures without jeopardizing fiscal stability long-term.
The road from here remains speculative. Factors such as inflation, wage growth, and external economic pressures will influence the effectiveness of the policies set forth. Investors and citizens alike will be watching closely as the government embarks on this ambitious path toward fostering economic resilience and growth.