– By Suman Chowdhury
The dominant theme in the Union Budget 2025-25 has been to provide a significant boost to consumption in the Indian economy through personal income tax cuts and higher disposable incomes of the middle class. However, Acuité Research also believes that the budget has mooted a slew of measures to expedite private sector investments, a critical element towards Viksit Bharat 2027. While maintaining the thrust on infrastructure development, it also continued to provide increasing support to the MSME and the agricultural sector. Last but not least, the commitment to fiscal consolidation has been maintained with the fiscal deficit pegged at 4.8% (RE) and 4.4% (BE) for FY25 and FY26 respectively.
While a tax relief for the middle class was expected, the concessions provided has exceeded the expectations. No tax is payable for salary incomes upto Rs 12.75 lakhs (including the standard deduction amount) and the 30% tax bracket starts only for incomes over Rs 24 lakhs. This is likely to result in potential savings of ~Rs 80,000 for taxpayers earning Rs 12 lakhs and above and can create space for additional aggregate consumption of Rs 1.5 Lakh Cr in the economy. Clearly, the extent of the tax cuts is very significant which will lead to an immediate personal income tax sacrifice of Rs 1 Lakh Cr.
Beyond the tax cuts, there are several measures to simplify tax rules particularly related to TDS. The government is walking the talk on tax reforms with a plan to place the new income tax bill in the parliament shortly; the latter may translate to simplification of the current income tax laws and rules, something that will go a long way in providing a conducive environment for new businesses.
Union Budget 2025-26 has announced a few long-term measures to expedite private sector investments. To address the concerns on red tapism, a high-level committee will be constituted to recommend regulatory reforms in the corporate sector involving licences, approvals etc. Such steps will gradually improve the ease of doing business, a pre-requisite for a sustained growth in private sector investments.
The government continues to demonstrate its commitment to the development of the MSME sector. Among the several additional measures in the current budget, one is to increase the guarantee cover for micro enterprises up to 10 Cr; for startups, the guarantee cover has been increased to 20 Cr. Women entrepreneurs have been provided enhanced access to funds. A new scheme is being envisaged to make India a global hub for toys, thereby supporting local toy manufacturers. The budget talks about setting up an Export Promotion Mission which will facilitate easy access to export credit, cross-border factoring support and handle non-tariff measures in overseas markets.
While the focus on building a stronger MSME manufacturing eco-system is visible, steps have also been taken to improve the viability of indigenous advanced technology based manufacturing; custom duty exemptions or concessions are provided particularly for inputs to some high-technology products or critical raw materials needed, for example, in battery manufacture. 100% FDI in the insurance sector is also a significant development which can raise the investment levels in a critical sector.
There is a need to improve productivity in the agriculture sector, given the persistently high food inflation in India. The government has taken cognizance of that criticality through a new programme – “PM Dhan Dhanya Krishi Yojana” in partnership with states that will identify 100 districts in the country with low crop productivity and work on their all-round agricultural development, potentially benefitting 1.7 Cr farmers. Separate initiatives have been proposed for achieving self sufficiency in pulses and edible oils where the import dependence continues to be high. The loan limit under Kisan Credit Card (KCC) for short term credit has been enhanced to Rs 5 lakhs.
The infrastructure sector remains a high priority for the government notwithstanding a moderate growth in the capex budget from Rs 10.2 Lakh Cr (RE, FY25) to Rs 11.2 Lakh Cr (BE, FY26). Several measures have been announced to strengthen the infrastructure and logistics sectors such as the ship building industry. For the maritime sector, a fund with a corpus of Rs 25,000 Cr will be set up for long-term financing with 49% contribution by the Government and balance mobilized from ports and the private sector. The government has proposed an “Urban Challenge Fund” with a corpus of Rs 1 Lakh Cr and an initial allocation of Rs 10,000 Cr for FY26 which will fund upto 25% of urban infrastructure projects with the balance to be funded through bonds, loans and PPP. Also, the partial guarantee scheme by NABFID on corporate bonds, if well designed, can boost investment in the infrastructure sector.
On alternative energies, the budget has brought nuclear power in the limelight. Towards energy transition, a target of100 GW of nuclear power capacity by 2047 has been set which will involve small modular reactors (SMR).
Lastly, as expected, there is a strong commitment to fiscal consolidation. The fiscal numbers have been slightly better than expected with fiscal deficit at 4.8% (RE) for FY25 vs 4.9% (BE). Further, an aggressive target of 4.4% (BE) has been set for FY26. While the fiscal figures are largely credible, the corporate tax collection targets look slightly optimistic in the backdrop of the economic slowdown and the pressures on corporate profitability. There is also no major mention on the disinvestment side or on how non-tax revenues will be mobilised; however, an asset monetization plan 2.0 has been mooted to generate fresh capital of Rs 10 Lakh Cr over 2025-2030.
Overall, we believe that the Union Budget Feb’2025 is a major consumption boosting budget, which should increase private consumption demand and push up the GDP growth that has moderated to 6.4% (RE) in FY25. At the same time, it continues to lay the building blocks required to take the Indian economy towards Viksit Bharat 2047.
(Suman Chowdhury is the Chief Economist and Executive Director at Acuité Ratings & Research.)
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