The Union Budget 2025-26, presented by Finance Minister Nirmala Sitharaman on February 1, 2025, introduces several measures aimed at stimulating economic growth, providing tax relief to the middle class, and promoting various sectors. Here's an overview of the key highlights and analyses:
Income Tax Reforms
A significant feature of this budget is the substantial relief provided to individual taxpayers. The income tax exemption threshold has been raised from ₹700,000 to ₹1.28 million, with reduced rates for incomes above this threshold. This move is designed to enhance middle-class consumption, savings, and investment, despite an anticipated annual revenue loss of approximately ₹1 trillion.
Agriculture and Rural Development
The budget places a strong emphasis on agriculture, launching a national mission to boost crop productivity and increasing subsidized credit limits for farmers. A high-yield crop program targeting 17 million farmers has been introduced to enhance agricultural output.
Support for Gig Economy Workers
Recognizing the growing gig economy, the government plans to provide identification cards and register one crore gig workers on the e-Shram portal. This initiative aims to formalize the sector and improve workers' access to healthcare and welfare programs.
Infrastructure and Capital Expenditure
The budget allocates ₹11.21 lakh crore for capital expenditure, marking a 0.9% increase from the previous year's allocation. This investment underscores the government's commitment to infrastructure development as a catalyst for economic growth.
Fiscal Deficit and Borrowing
The government has set a fiscal deficit target of 4.4% of GDP for 2025-26, down from a revised 4.8% in the current year. To fund the deficit, gross market borrowing is projected at ₹14.82 trillion, with net market borrowing slightly decreasing to ₹11.54 trillion. The aim is to reduce the debt-to-GDP ratio to 50% by March 2031 from the current 57.1%.
Sectoral Impacts
Beneficiaries: The fast-moving consumer goods (FMCG) and automotive sectors are expected to benefit from increased consumer spending due to tax cuts. Companies like Hindustan Unilever, Nestle, Maruti Suzuki, and Hero MotoCorp have already seen positive market reactions.
Challenges: Insurance companies may face challenges as higher tax slabs could reduce the attractiveness of tax-saving insurance products.
Expert Opinions
While the tax relief measures are anticipated to boost consumption, some analysts, including those from Moody's Ratings, express skepticism about their sufficiency in significantly accelerating economic growth. They suggest that capital expenditure on infrastructure may provide a more sustainable boost to the economy.
In summary, the Union Budget 2025-26 introduces substantial tax reforms and allocates resources across key sectors to stimulate growth. The effectiveness of these measures will depend on their implementation and the broader economic environment.
