NK SINGH
THE Budget of 2025-26 is transformative in multiple ways. This is Nirmala Sitharaman’s eighth budget and the first real budget of Prime Minister Modi in his third term in office. Six important features deserve emphasis.
First, there is a deep rationalisation of the tax structure. I do not recall any instance when tax slabs were restructured to provide relief to every segment of the taxpayer. This change enhances buying power, simplifies compliance, and leaves more disposable income in the hands of the middle class. The resulting boost in overall consumption is expected to provide a decisive fillip to the economy. With the introduction of the new tax code planned for next week, we stand at the threshold of transformative tax changes.
Second, while sacrificing over 1 lakh crore in tax revenues, the Government has maintained its commitment to fiscal consolidation over the medium term. After achieving a 4.8 per cent fiscal deficit in 2024-25, the new target is 4.4 per cent. More importantly, the accompanying macroeconomic policy statement forecasts that the debt-to-GDP ratio will decline from 57.1 per cent in FY 2024-25 to 56.1 per cent in FY 2025-26. This improvement is predicated on ongoing structural reforms and increased investments in the social sector.
Third, the Budget is notably multifaceted, promising a thrust to nearly every segment of the economy. Among the six focus areas is a strong commitment to spurring agricultural growth and productivity. Initiatives include a mission to achieve self-sufficiency in lentils and a strategy to address changing consumer preferences by emphasising fruits, vegetables, and fisheries. These measures align with LiFE principles, nutritional standards, and sustainable practices. Additional actions, such as the National Mission on cotton productivity, promotion of high-yielding seeds, and improved urea availability from a major plant in Assam, will act as catalysts for India’s growing rural economy, with the corporate sector playing a new and important role.
Fourth, the Budget prioritises the MSME sector, often compared to the “Mittelstand” of SMEs, as highlighted in the Economic Survey. This sector has received enhanced resources through public-private partnerships and additional finances via special schemes aimed at labour-intensive manufacturers like those in footwear. Targeted initiatives for women, SCs, and STs — aligned with Stand-Up India — are designed to boost industries such as toys and food processing. There is also an emphasis on harnessing renewable energy sources like solar, wind, and supporting electric vehicles, in line with our environmental commitments.
Fifth, the Budget places a strong focus on investments in education, research, and infrastructure. Initiatives include expanding the reach of the Atal Tinkering Labs and establishing national centres for skilling and skill development. In the medical sector, plans to expand medical education and increase seats in IITs are expected to generate significant employment multipliers. Initiatives aimed at the urban sector and gig workers further underline the commitment to expanding opportunities. Many of these projects will be implemented via public-private partnerships, providing scope for private investment and a renewed compact with the states. Notably, states are allowed to borrow an additional 0.5 per cent of GDP if they undertake ongoing power reforms, in line with recommendations of the 15th Finance Commission — a body I had the privilege to chair.
New initiatives in the shipbuilding sector, long neglected, are expected to generate employment when combined with efforts to boost air connectivity and tourism infrastructure. The untapped potential of tourism and hospitality, recognised for its high employment potential, now receives longoverdue attention. Sixth, effective management of the economy depends on coordinating monetary and fiscal policies, both of which are expected to drive growth.
The rationalisation of tax policies, along with the new direct tax code and reforms in indirect taxes, creates a symmetry between these policies. Beyond the muchdiscussed tax breaks, reforms in tax deduction at source (both TDS and TCS) are anticipated to foster greater voluntary compliance. Additionally, support for small charitable trusts is expected to serve as an important multiplier for growth.
On the macroeconomic front, the Budget anticipates GDP growth between 6.3 per cent and 6.8 per cent for this year, while acknowledging the need for an 8 per cent growth rate to achieve a Viksit
Bharat. Several challenges remain: 1.Managing geopolitical uncertainties: Unpredictable policies from the G7 countries and other Asian nations pose significant challenges.
2.Attracting direct private investment: One key initiative is freeing up the insurance sector to 100 per cent, which should encourage more private investment.
3.Ensuring macroeconomic stability: Maintaining inflation within a tight band of 4.3 per cent to 4.4 per cent is critical.
4.Enhancing the investment rate: Increasing investment from 31 per cent to around 35 per cent is necessary for a Viksit Bharat.
5.Managing current account deficits: Keeping deficits within the range of 1.2 per cent to 2.2 per cent will require significantly enhanced export capabilities amid global trade slowdowns and supply chain disruptions.
6.Embracing technology: The budget emphasises adopting generative artificial intelligence at affordable costs. Investing in foundational models and implementing regulatory changes can boost productivity without sacrificing employment, though this area will require constant monitoring. From an overall point of view, this Budget is far from incremental. Its breadth of reforms and multiplicity of changes render it transformative in many ways. It is set to reinvigorate hopes and expectations and rekindle the Modi Magic
