Author: Joyita Ghosh, Jindal Global Law School
The Union Budget 2025-26, presented by Finance Minister Nirmala Sitharaman, aims to strike a balance between economic growth, fiscal prudence, and social welfare. With the theme “Sabka Vikas” (Collective Progress), the budget focuses on tax reforms, infrastructure expansion, and support for agriculture, MSMEs, and innovation. But does it truly deliver on expectations? Let’s take a closer look.
1. Major Tax Reforms: A Win for the Middle Class?
One of the biggest highlights of this budget is the overhaul of the personal income tax structure. Individuals earning up to ₹12 lakh per year will no longer have to pay income tax under the new regime. For salaried individuals, the introduction of an additional ₹75,000 standard deduction pushes the exemption limit to ₹12.75 lakh.
What This Means for You:
• More disposable income for middle-class households.
• Increased consumer spending, which could give a boost to the economy.
• Relief for salaried professionals who have been hoping for tax cuts.
The Flip Side:
While this tax relief is a welcome move, it comes with a trade-off. Lower tax collections mean reduced government revenue, which could impact funding for welfare schemes and infrastructure. Will the increased consumer spending compensate for the revenue loss? That’s something to watch in the coming months.
2. Capital Expenditure: Investing in Growth
The government has allocated a whopping ₹50.65 lakh crore for total expenditure, marking a 7.4% increase from the previous year. A significant chunk of this will go toward infrastructure development—roads, railways, urban planning, and digital connectivity.
Why This Matters:
• Job Creation: Large-scale infrastructure projects generate employment.
• Boost to Manufacturing: Better roads and logistics mean smoother business operations.
• Long-Term Growth: Investing in infrastructure ensures sustained economic expansion.
Challenges Ahead:
• Delays & Execution Issues: Infrastructure projects in India often face delays due to bureaucratic hurdles and land acquisition challenges.
• Debt Management: Increased spending should not lead to unsustainable debt.
3. Focus on Agriculture & MSMEs: Is It Enough?
The budget recognises the importance of agriculture and MSMEs, which together employ a large portion of the population. A National Institute of Food Technology is being set up in Bihar, aimed at boosting farmers’ income through skill development and entrepreneurship.
Positive Aspects:
• More investment in agri-tech and food processing.
• Efforts to improve farmers’ access to markets and technology.
• MSMEs receive easier credit access, helping small businesses grow.
Concerns:
• Implementation Gap: Many previous schemes for farmers have struggled with last-mile delivery.
• Rural Distress Remains: While these steps help, broader issues like low farm incomes and climate change impact still need stronger interventions.
4. Innovation & Energy: A Step Toward the Future
The government is betting big on research and innovation to position India as a global tech hub. A ₹20,000 crore allocation for private sector-led R&D and innovation, along with a ₹10,000 crore Fund of Funds for deep-tech startups, is a step in the right direction.
What’s Exciting:
• More funding for AI, robotics, and next-gen tech startups.
• Encouragement for companies to invest in R&D.
• Push for nuclear power, with reforms in liability laws to attract private and foreign investment.
Challenges:
• India still lags behind global leaders in patent filings and innovation spending.
• There is a need for stronger collaboration between academia, industry, and the government to make R&D more effective.
5. Fiscal Discipline: Walking a Tightrope
One of the biggest challenges for any government is balancing growth with fiscal responsibility. Interest payments alone account for 25% of total expenditure, meaning the government must be careful about how much it borrows.
Key Observations:
• The budget prioritizes capital expenditure, which is good for long-term growth.
• But lower tax revenues could create a fiscal gap.
• Finding alternative revenue sources (like disinvestment) is crucial to keep the economy stable.
Conclusion
A Balanced Budget with Open Questions
The Union Budget 2025-26 presents a pro-growth vision while offering significant tax relief to the middle class. The focus on infrastructure, agriculture, MSMEs, and innovation is well-placed, but execution remains the key challenge.
Pros:
✔️ Middle-class tax relief will boost spending.
✔️ Increased infrastructure spending supports job creation.
✔️ Push for innovation and energy reforms is forward-thinking.
Cons:
❌ Reduced tax revenue may impact government finances.
❌ Execution of welfare and infrastructure projects needs improvement.
❌ Support for small farmers and rural India could have been stronger.
Overall, this budget lays a strong foundation for long-term growth, but the real test lies in how well these policies are implemented in the coming months. Will this budget truly benefit all sections of society? Only time will tell.
FAQS
1. What is the biggest highlight of Budget 2025-26?
The most significant announcement is tax relief for the middle class. Individuals earning up to ₹12 lakh annually are now exempt from income tax under the new tax regime. Salaried taxpayers get an additional ₹75,000 standard deduction, making their effective exemption limit ₹12.75 lakh.
2. How does the new tax structure benefit salaried individuals?
• If you earn ₹12 lakh or less, you don’t have to pay any income tax.
• Salaried taxpayers get an extra ₹75,000 deduction, reducing their taxable income.
• This move increases disposable income and helps boost consumer spending.
However, this applies to the new tax regime only, meaning some deductions (like HRA and 80C) won’t be available.
3. How much has the government allocated for infrastructure development?
The budget increased capital expenditure by 7.4% to ₹50.65 lakh crore. This will fund major road, rail, urban development, and digital infrastructure projects.
4. What is being done for farmers and MSMEs?
• A National Institute of Food Technology is being set up in Bihar to help farmers with skill development and entrepreneurship.
• MSMEs will get easier access to credit to support small business growth.
However, experts argue that more direct benefits (such as farm loan waivers and price support schemes) were needed to address rural distress.
5. What steps has the government taken for startups and innovation?
• ₹20,000 crore has been allocated for private sector-led R&D and innovation.
• A ₹10,000 crore Fund of Funds will support deep-tech startups.
• There is a push for AI, robotics, and advanced technology research.
This will help make India a global tech and manufacturing hub, but execution challenges remain.
6. Has the government addressed concerns about the fiscal deficit?
The budget maintains a focus on fiscal discipline, but there are concerns:
• Interest payments make up 25% of total expenditure, leaving limited room for welfare spending.
• The government is relying on higher tax collections and disinvestment to fund expenses.
The real challenge is ensuring that growth continues without increasing debt.
7. What are the key challenges of this budget?
1. Lower tax revenue: While tax relief benefits individuals, it could impact government finances.
2. Execution of projects: Infrastructure projects often face delays and cost overruns.
3. Rural distress: While there are initiatives for agriculture, broader concerns about low farm incomes and rural unemployment remain.
8. What does this budget mean for investors?
• No major new taxes on investments, which is positive for stock markets.
• Increased infrastructure spending can benefit construction, real estate, and manufacturing stocks.
• Tech and innovation funds may drive startup growth and IPO activity.
Overall, the budget is market-friendly, but global economic factors will also influence investment trends.
9. Is there any change in GST or corporate tax rates?
No, the budget did not announce any changes in GST or corporate tax rates. Businesses were hoping for some relief, but the focus remains on compliance and digital tax monitoring.
10. Will the tax exemptions apply to both old and new tax regimes?
No, the tax exemption up to ₹12 lakh applies only to the new tax regime. If you choose the old tax regime, standard deductions and exemptions (like HRA and 80C) still apply, but you won’t benefit from the new exemptions.
