NEW DELHI — In a bid to strengthen economic growth and address key challenges, Prime Minister Narendra Modi’s government unveiled the Indian Union Budget 2025 – 26 on Saturday. Presented by Finance Minister Nirmala Sitharaman, the budget focuses on empowering the salaried middle class with tax cuts, boosting agriculture, and driving investments in manufacturing and clean energy.
Sitharaman emphasized the government’s commitment to fostering inclusive growth, stating, “The focus of the Indian Union Budget 2025 is taking everyone together on an inclusive path.” She also announced a target fiscal deficit of 4.4% of GDP for the upcoming financial year.
The budget comes at a critical juncture for India, the world’s fifth-largest economy, which is grappling with sluggish manufacturing, persistent food inflation, stagnant job growth, and weak urban consumption. According to the Chief Economic Advisor’s report released on Friday, India’s economy is projected to grow between 6.3% and 6.8% in the next fiscal year.
Here are the key highlights from the Union Budget 2025:
Income Tax Relief for the Middle Class
In a move aimed at easing the financial burden on the salaried middle class, Sitharaman announced significant reforms in the income tax structure. The tax-free income threshold has been raised to US$ 14,800, 8,074, providing immediate relief to millions of taxpayers.
“The new structure will substantially reduce the taxes of the middle class and leave more money in their hands, boosting household consumption, savings, and investment,” Sitharaman said.
The tax cuts are seen as a strategic effort by the Modi government to address growing discontent among the middle class and stimulate economic activity. With youth unemployment at 7.5% (as per the Center for Monitoring the Indian Economy), the government is under pressure to create jobs and sustain growth in a country of over 1.4 billion people.
Agriculture and Gig Economy Get a Boost
To revitalize the agriculture sector, the government announced a nationwide program to promote high-yielding crops, with a focus on pulses and cotton production. The initiative aims to benefit at least 17 million farmers, with the limit for subsidized agricultural credit increased from 5,767.
In a significant move for India’s growing gig workforce, the government plans to formally register gig workers and provide them with identity cards. A national registry will be created to ensure their inclusion in welfare schemes and improve access to healthcare.
According to estimates by government think tank NITI Aayog, India’s GIG economy could employ over 23 million people by 2030, making this initiative crucial for the sector’s growth.
Startups, Manufacturing, and Clean Energy in Focus
The budget also outlined measures to boost innovation and entrepreneurship. Sitharaman announced a new startup fund to support young businesses and promote collaboration between the government and private sector.
Despite efforts to increase manufacturing’s share in the economy, it currently stands at 17%, falling short of the government’s 25% target. To bridge this gap, the budget includes programs to enhance manufacturing and exports.
Tourism also received a significant push, with plans to create jobs by improving infrastructure and expanding air connectivity to 120 new destinations over the next decade.
In a bold step toward clean energy, Sitharaman unveiled the Nuclear Energy Mission, aiming to develop 100 GW of nuclear power by 2047. This initiative underscores India’s commitment to transitioning to sustainable energy sources.
Fiscal Discipline and Economic Growth
The budget sets a fiscal deficit target of 4.4% of GDP for the fiscal year 2025-26, down from the revised 4.8% for the current year. Despite an increase in gross borrowing to ₹14.82 trillion to fund the deficit, net market borrowing will see a slight reduction to ₹11.54 trillion. The government has also committed to reducing the debt-to-GDP ratio from 57.1% to 50% by March 2031, aligning with global fiscal policy trends.
Sectoral Impacts and Market Reactions
The budget’s focus on increasing disposable income through tax exemptions is expected to benefit the fast-moving consumer goods (FMCG) sector, with companies like Hindustan Unilever and Nestle anticipated to see gains. The automotive sector is also poised for positive impacts, with companies such as Maruti Suzuki and Hero MotoCorp likely to benefit. Conversely, the infrastructure sector experienced a slump due to a modest rise in capital expenditure, and insurance companies faced losses as higher tax slabs reduced the attractiveness of tax-saving insurance products.
Challenges Ahead
While the budget has been welcomed for its focus on inclusive growth, challenges remain. Sluggish manufacturing, high food inflation, and unemployment continue to weigh on the economy. Economists have urged the government to implement job creation programs and address structural issues to ensure long-term growth.
Conclusion
The Union Budget 2025 reflects the Modi government’s efforts to balance immediate economic relief with long-term growth strategies. By prioritizing tax cuts for the middle class, boosting agriculture, and investing in clean energy and startups, the budget aims to lay the foundation for a more resilient and inclusive economy.
As India navigates its economic challenges, the success of these measures will depend on effective implementation and sustained efforts to address underlying issues.
