Overview of Union Budget
India’s annual financial planning process centers on the Union Budget, which is constitutionally recognized under Article 112 as the Annual Financial Statement. This comprehensive fiscal document outlines the nation’s expected income and planned expenditures for the upcoming financial year. While the Department of Revenue focuses on income projections, the Department of Expenditure handles public sector spending plans, all aligned with broader economic policies.
Since 2016, the budget presentation has taken place on February 1st, shifting from its traditional date at February’s end. This earlier timing allows for implementation before the new fiscal year begins in April. The budget’s preparation falls under the budget division within the finance ministry’s Department of Economic Affairs. For the budget to take effect, it must clear several parliamentary hurdles. Both the Finance and Appropriation bills require Lok Sabha approval before implementation on April 1st.
A significant change occurred when the Railway Budget, previously separate for nearly a century, was incorporated into the main budget. Since independence, India has seen 73 regular annual budgets, supplemented by 14 interim budgets and four mini-budgets for special circumstances.
The Union Budget for 2025-26, presented by Finance Minister Nirmala Sitharaman on February 1, 2025, has sparked widespread discussions. The budget introduces several measures to stimulate economic growth, boost household savings, and promote inclusive development. While some initiatives have been well received, others have faced criticism for not addressing key concerns such as unemployment and income inequality.
1. Personal Income Tax Reforms: Relief for the Middle Class
The budget provides significant tax relief for salaried individuals. Under the new tax regime, no income tax is applicable on annual incomes up to ₹1.2 million, increasing household savings and consumer spending. Additionally, the highest tax rate of 30% now applies only to incomes above ₹2.4 million. The time limit for filing updated income tax returns has also been extended from two to four years, offering greater flexibility to taxpayers. The budget also raises the TDS threshold on rent from ₹2.4 lakh to ₹6 lakh, benefiting landlords and tenants.
2. Agriculture Initiatives: Strengthening Rural India
Agriculture, a key pillar of the Indian economy, has received notable support. The Prime Minister Dhan-Dhaanya Krishi Yojana aims to boost productivity and infrastructure in 100 districts, benefiting 1.7 crore farmers. A six-year ‘Mission for Aatmanirbharta in Pulses’ has been launched with a focus on Tur, Urad, and Masoor to reduce dependency on imports. The Kisan Credit Card (KCC) scheme has been expanded, increasing loan limits from ₹300,000 to ₹500,000 under a modified interest subvention scheme. Additionally, a five-year Mission for Cotton Productivity has been introduced to enhance yields and reduce dependence on imports.
3. Boosting MSMEs: Expanding Opportunities for Small Businesses
Micro, Small, and Medium Enterprises (MSMEs) have been recognized as a key driver of economic growth. The credit guarantee cover for MSMEs has been doubled from ₹5 crore to ₹10 crore, improving access to finance. A new initiative to support 5 lakh first-time entrepreneurs from Scheduled Castes, Scheduled Tribes, and women will offer term loans of up to ₹2 crore over the next five years. Additionally, a National Manufacturing Mission has been launched to bolster India’s ‘Make in India’ initiative across small, medium, and large industries. The investment and turnover limits for MSME classification have been increased to encourage business growth and efficiency.
4. Infrastructure and Capital Expenditure: Strengthening Growth Engines
Capital expenditure has been moderately increased, with an overall budget expenditure set at ₹50.65 trillion. The government has introduced a ₹1 lakh crore Urban Challenge Fund to promote urban growth and development. To enhance regional connectivity, the modified UDAN scheme aims to add 120 new flight destinations across India. Additionally, ₹15,000 crore has been allocated to the SWAMIH Fund to facilitate the completion of 1 lakh stressed housing units. However, some experts argue that the capital investment is not substantial enough to drive large-scale economic transformation.
5. Support for Gig Workers: Formalizing the Informal Workforce
Recognizing the growth of the gig economy, the budget introduces social security measures for gig workers. These include identity cards, registration on the e-Shram portal, and healthcare coverage under the PM Jan Arogya Yojana, offering millions of gig workers better job security and benefits. Furthermore, gig workers will have access to UPI-linked credit cards with a ₹30,000 limit, improving their financial inclusion.
6. Renewable Energy and Sustainability: A Step Towards Green Growth
The government has taken steps to promote renewable energy through the Nuclear Energy Mission, which aims to develop small modular reactors with an allocation of ₹20,000 crore. This aligns with India’s long-term strategy for achieving 100 GW of nuclear power by 2047. Additional incentives have been announced for electric vehicle (EV) battery production and mobile battery manufacturing to accelerate the transition towards clean energy. The budget also introduces a 10-year exemption on basic customs duty (BCD) for raw materials used in shipbuilding, promoting domestic manufacturing.
7. Education and Innovation: Investing in the Future
The budget focuses on education and research with initiatives such as 50,000 Atal Tinkering Labs in government schools over the next five years. Additionally, a Centre of Excellence in Artificial Intelligence for Education has been announced with a total outlay of ₹500 crore to integrate AI into the learning ecosystem. A ₹20,000 crore fund for private-sector-driven research and innovation has also been allocated to boost R&D across key industries.
8. Impact on Various Groups/Sectors
- Middle Class: The increased tax exemption threshold is a major win, improving disposable income and savings.
- MSMEs: Enhanced credit access and policy support offer significant growth opportunities.
- Infrastructure Firms: While capital spending has increased, it is perceived as inadequate for large-scale impact.
- Gig Workers: The introduction of formal recognition and social security measures is a positive step.
- Housing Sector: The SWAMIH Fund allocation is expected to facilitate housing project completions.
- Economically Disadvantaged Groups: Critics argue that the budget does not sufficiently address poverty, wage stagnation, or unemployment.
Major Criticisms: What’s Missing?
Despite several forward-looking measures, the budget has faced criticism for not taking bold steps to address pressing issues. Concerns include:
- Unemployment and Income Inequality: No major reforms were announced to tackle rising joblessness and wage stagnation.
- Foreign Debt and Fiscal Deficit: While the fiscal deficit is projected to reduce from 4.8% to 4.4%, critics argue that stronger measures are needed for long-term economic stability.
- Limited Focus on Social Welfare: Some experts feel the budget lacks substantial programs for youth, women, and the economically weaker sections.
A Budget of Hits and Misses
The Union Budget 2025-26 presents a mix of promising reforms, particularly in taxation, agriculture, MSME growth, and renewable energy. While these measures are expected to drive economic progress, the budget falls short in addressing fundamental issues like unemployment, wage stagnation, and social welfare. As always, the success of these policies will depend on their implementation and long-term impact.
