Recently, the Finance Minister of India Nirmala Sitharaman, presented the Union Budget for the financial year 2025-26 (FY26). A day prior, she released the Economic Survey for the financial year 2024-25 (FY25) which narrated the state of the economy and presented an outlook for India’s economic future. The Survey, projected the Indian economy to expand by 6.4% in FY25, maintaining a trajectory consistent with its long-term growth pattern.
Forecasts for FY26 suggested a GDP growth rate between 6.3% and 6.8%, reflecting cautious optimism amid global uncertainties. It underscored the resilience of the Indian economy, emphasising domestic consumption and investment as critical growth levers. The Survey forecasted that in FY25, the agricultural sector would grow by 3.8% (driven by Kharif crop production and allied farm activities), manufacturing sector by 6.2% and services by 7.2%.
Consumer price inflation has shown signs of moderation, with retail inflation easing to 4.9% between April and December 2024 (from 5.4% in FY24) and is expected to further stabilise with projected inflation aligning closer to the targeted 4% in the coming financial year.
Capital expenditure has exhibited an upward trajectory, registering 8.2% growth between July and November 2024. India’s external trade performance has remained strong, with overall exports rising by 6.0% year-on-year during April-December 2024. The services sector has particularly excelled, recording a 12.8% surge in exports over the same period, significantly outpacing the previous year’s growth rate of 5.7%.
Foreign investment inflows have also seen a notable increase, with gross FDI rising by 17.9% to reach USD 55.6 billion in FY25. Expenditure on social services has grown consistently, averaging an annual increase of 15% between FY21 and FY25. Government spendings on healthcare have notably improved, with its share rising from 29% to 48%, while out-of-pocket health expenditures have declined from 62.6% to 39.4% over the past decade.
In terms of employment, the unemployment rate has shown a steady decline to 3.2% in 2023-24, compared to 6.0% in 2017-18, reflecting a positive shift in the labour market.
This year’s Economic Survey concluded by advocating for regulatory reforms to enhance economic efficiency and suggested that sustained infrastructure investments over the next two decades will be critical for maintaining high growth rates.
It emphasises the role of deregulation, technological advancements, and targeted fiscal measures in ensuring long-term economic resilience. The Economic Survey laid out the foundation for the Budget of 2025-26 which was expected to address concerns around inflation, job creation, fiscal prudence, and sustained economic expansion.
This year’s Budget relied on the current Government’s mantra of a “Viksit Bharat” and it focused on developing ten broad areas in line with this agenda. These ten areas included, spurring agricultural growth and productivity, building rural prosperity and resilience, taking everyone together on an inclusive growth path, boosting manufacturing and furthering make in India, supporting MSMEs, enabling employment-led development, investing in people, economy, and innovation, securing energy supplies, promoting exports, and nurturing innovation.
The fiscal deficit target for FY26 is set at 4.4% of GDP, revised down from 4.8% in the current financial year. The Government also plans to shift to debt-to-GDP as the key benchmark for fiscal policy from 2026-27 onwards while targeting to bring down debt level from current 57.1% to 50% by March 2031. Capital expenditure has been raised from 11.11 lakh crore rupees in the current fiscal year to 11.21 lakh crore rupees (0.9% over last year) for the oncoming fiscal year.
This year, the biggest announcement perhaps has been on personal income tax. The finance minister announced that there would be no income tax for people earning up to 12 lac rupees. This is an excellent move considering this change is expected to boost disposable incomes, leading to increased household consumption and economic growth. Moreover, with the soon-to-be-implemented 8th Central Pay Commission, the expected loss (of 1 lakh crore direct tax and 2600 crore indirect taxes) from this change would only be for a short period. This move is also expected to work in favour of the Bhartiya Janata Party (BJP) in the upcoming assembly elections in Delhi.
Another big announcement in the budget was the Government’s plan to register and provide identity cards to gig workers which would enable them to afford various social services schemes run by the Government such as the PM Jan Arogya Yojana. This is an excellent initiative as this data can be further utilised for offering other social benefits such as pension/provident funds and other social benefits by employers in the future. This would also provide better bargaining power to gig workers in the private sector. The Government has enhanced the Kisan credit card limit from 3 lakh rupees to 5 lakh rupees and raised the credit guarantee for MSMEs from 5 lakh rupees to 10 lakh rupees. Both initiatives are expected to have a positive impact on MSME production and agriculture.
This budget also introduced a credit card for MSMEs which is expected to relax working capital limitations and increase financial inclusion for micro and small enterprises.
The Government has been promoting tourism as a sustainable sector for creating jobs and infrastructure development. To further this initiative, this budget has planned to develop 50 tourist destinations across the country in partnership with states. This would entail providing skill development among youths, providing loans through the MUDRA scheme, improving ease of travel, and streamlining e-visa facilities. As a part of this, spiritual tourism (especially Buddhist circuits) and medical tourism are also expected to get a boost. To improve connectivity with far-fetched destinations and enhance regional connectivity, especially in North East India, a modified UDAN scheme is being launched to connect 120 new destinations in the next ten years.
A major announcement made in this Budget was raising the FDI limit in insurance from the existing 74% to 100% with an added caveat that the premium raised is invested in India. Although, this garnered mixed reaction from the industry, but this will bring in further competition in the insurance sector especially in lesser looked areas such as disaster risk financing.
Increasing domestic production and export have been prime areas of focus of this Government and it was reflected in this budget. To create a better logistical framework and efficient supply chain for domestic and overseas movement of goods, the finance minister announced transforming the large network of India Post services to a large public logistic organisation.
This decision would benefit small domestic manufacturers and exporters in accessing affordable logistical support to transport their goods and merchandise. This move could benefit India the same way how China Post benefitted the Chinese supply chain system. To increase domestic production, the Government has also initiated several duty cuts and tax rebates. For example, cobalt powder and waste, the scrap of the lithium-ion battery, lead, zinc, and twelve more critical minerals; thirty-five capital goods for EV battery manufacturing, and twenty-eight capital goods for mobile phone battery manufacturing are fully exempted from basic customs duty (BCD). These apart, BCD has been reduced for several other items such as carrier-grade ethernet switches, crust leathers, and frozen fish paste among others, used as raw material in various manufacturing.
This budget has announced several initiatives to boost innovation and technology in India. Setting up a Deep Tech Fund of Funds for next-generation startups, launching a National Geospatial Mission to develop foundational geospatial infrastructure and data, and setting up a 2nd Gene Bank with 10 lakh germplasm lines for future food and nutritional security are among few of the major announcements.
Unexpectedly, there have been no new announcements on sustainable financing (except maybe allocation of 20000 crore rupees for the development of Small and Nuclear Reactors under the Nuclear Energy Mission) or climate finance in this Budget. Considering the increasing number of natural disasters and environmental hazards in India, creating a climate finance taxonomy with a disaster financing framework should be among the top priorities of the Government. The absence of any relevant announcement around this raises eyebrows on the country’s COP26 commitments. The Budget also missed an opportunity to announce the creation of a regulatory framework or any new policy around the growing virtual digital asset ecosystem. This too questions the country’s commitment towards developing global standards in regulating crypto-assets during the G20 Summit in 2023.
The finance minister also stayed away from making any new announcements on gold or the gems and jewellery sector, one of the most export-oriented MSMEs in India. Most importantly, similar to the last Budget, this Budget too gave no indication around divestment (dis-investment) targets. This raises the imminent question that in the absence of a divestment plan and a massive income tax cut, will higher market borrowings and public-private partnerships sustain this year’s fiscal target?
To summarise, the Union Budget 2025-26 addressed major economic concerns while reiterating this Government’s commitment to long-term economic transformation. This budget also came at a crucial political juncture, as this was the first full budget after the BJP-led NDA coalition came to power for the third time, making it a balancing act between fiscal discipline, growth aspirations, public expectation, and maintaining a political bonhomie among all the stakeholders of this coalition. This Budget ensured continued investment in critical sectors and innovation, although certain sectors, particularly health and infrastructure development, could have seen greater support.
However, the long-term success of this budget will depend on policy execution and global economic stability.
Arindam Goswami is an economist and the co-founder of Policy Consensus Centre, New Delhi.
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