The Indian government presented its Union Budget for the fiscal year 2025-26, aimed at stimulating economic growth, supporting key sectors, and addressing challenges facing the economy. As with any national budget, it has received mixed reactions from analysts, policymakers, and the public. While there are several positive aspects that could fuel short-term growth and development, there are also areas that require careful consideration for long-term sustainability. This article critically examines the positive and negative aspects of the Union Budget 2025.
- Tax Reforms and Relief for the Middle Class: One of the most significant announcements in this budget is the substantial tax relief for individuals. The government has introduced zero income tax for individuals earning up to ?12 lakh annually. This move is expected to increase disposable income among the middle class, fostering greater consumer spending. Additionally, there are notable revisions in the Tax Deducted at Source (TDS) provisions, such as increasing the limit for TDS on senior citizens’ interest income from ?50,000 to ?1 lakh and raising the threshold for TDS on rent from ?2.40 lakh to ?6 lakh. These adjustments are designed to reduce the tax burden on individuals and boost consumption in the economy.
- Support for Agriculture: The budget outlines several initiatives aimed at supporting the agriculture sector, which remains a cornerstone of India's rural economy. The government has introduced the Prime Minister Dhan-Dhaanya Krishi Yojana, targeting 100 districts with low agricultural productivity. By focusing on improving productivity in these regions, the scheme seeks to enhance food security and rural development. Moreover, the Kisan Credit Card (KCC) scheme has been expanded to cover 7.7 crore farmers, fishermen, and dairy farmers, providing them with easier access to short-term loans, thereby improving financial inclusion and the capacity of farmers to invest in their livelihoods.
- Boost to Micro, Small, and Medium Enterprises (MSMEs): MSMEs are crucial for job creation and economic growth in India. Recognizing this, the government has allocated substantial resources to support these enterprises. The focus is on facilitating access to finance, promoting digitalization, and improving the ease of doing business. These measures will likely enhance the competitiveness of MSMEs and contribute to their long-term growth, creating more employment opportunities.
- Infrastructure Development and Capital Expenditure: A significant allocation of ?11.2 lakh crore (3.1% of GDP) has been earmarked for capital expenditure, particularly in infrastructure development. The increased spending on infrastructure aims to stimulate economic activity, create jobs, and improve the overall business environment. Investments in roads, railways, ports, and airports are expected to improve connectivity and boost trade and commerce, benefiting the economy in both the short and long term.
- Export Promotion: In a bid to enhance India’s export capabilities, the budget proposes several measures, including exemptions on goods used for shipbuilding and on capital goods for lithium-ion batteries, which are critical to mobile phones and electric vehicles. By making these exports more competitive, the government hopes to bolster India’s presence in global markets and achieve its export targets.
- Focus on Short-Term Economic Relief: While the tax cuts and relief measures for the middle class are popular, some critics argue that the budget focuses more on providing short-term economic relief rather than implementing long-term structural reforms. The reduction in tax rates may provide immediate relief to consumers, but there is concern that such measures may not be enough to address deep-rooted challenges in areas like employment, infrastructure, and governance. The budget could have introduced more ambitious reforms to boost India’s economic potential in the long run.
- Limited Attention to Key Structural Reforms: India’s economy continues to face structural issues, such as labor market inefficiencies, inadequate healthcare infrastructure, and complex regulatory frameworks. The budget does not place enough emphasis on addressing these long-term problems. For instance, the agricultural sector remains heavily dependent on government support, and while the KCC scheme expansion is a welcome step, it does not offer a comprehensive solution to the sector's productivity and sustainability challenges. Similarly, there is insufficient focus on labor law reforms that would increase formal sector employment and improve workforce productivity.
- Risk of Over-Reliance on Government Spending: The government’s emphasis on infrastructure development and capital expenditure is commendable, but there is a risk of over-reliance on public spending to fuel growth. Critics argue that without significant private sector participation, public infrastructure investments may not yield the desired growth outcomes. Moreover, the focus on capital expenditure could divert funds from other important areas, such as social welfare programs or education, that also need attention to achieve inclusive growth.
- Weakness in Job Creation: Despite the emphasis on infrastructure and MSMEs, the budget lacks clear strategies for tackling India’s ongoing unemployment crisis. While infrastructure projects may create short-term jobs, the budget does not present a robust plan for generating sustainable employment opportunities, especially for India’s young population. Without addressing the skills gap and ensuring that the labor force is aligned with market needs, India may struggle to create meaningful and long-term jobs.
- Challenges in Fiscal Deficit Management: The government has outlined a path to reducing the fiscal deficit, but the emphasis on increased spending could make it difficult to achieve fiscal consolidation. Critics argue that without significant reforms in tax collection or expenditure management, the government may face challenges in controlling its fiscal deficit in the coming years. An unbalanced fiscal approach could lead to inflationary pressures and increased borrowing costs in the future.
The Union Budget 2025 presents a balanced approach with commendable measures to stimulate economic growth, support key sectors, and boost consumption. However, its focus on short-term relief measures and lack of bold, long-term reforms may limit its effectiveness in addressing India's structural challenges. For India to achieve sustainable growth and development, it will need to prioritize comprehensive reforms that foster innovation, improve job creation, and enhance productivity across all sectors. While the budget lays a strong foundation, the government must continue to focus on policy actions that lead to enduring economic transformation.
