If your car is sputtering, and a faulty fading battery appears to be the cause, the only immediate alternative is to try and jumpstart it by hooking it up with another running car.
Finance Minister Nirmala Sitharaman sought to do just that on Saturday (February 1, 2025) with her Union Budget for 2025-26 — jumpstart slowing economic activity with a significant ₹1 lakh crore tax stimulus for households of the sort the government has generally refrained from — in the hope that India’s weakening domestic demand will rebound and bring the economy back to the fast lane.
Union Budget 2025 | Highlights
Ms. Sitharaman began her speech by stating the Budget seeks to accelerate growth, uplift household sentiments and enhance the spending power of India’s rising middle class, and ended with the biggest relief measure for taxpayers in recent times — no income tax would be payable for annual incomes of up to ₹12 lakh, up from the present limit of ₹7 lakh.
Finance Secretary Tuhin Kanta Pandey said the change under the new personal income tax regime, where no other exemptions are permitted, could help one crore tax payers have a zero-tax liability, except on incomes from sources like capital gains that attract special rates. For salaried tax payers, the tax-free income threshold will be ₹12.75 lakh a year, thanks to standard deduction of ₹75,000.
The post-pandemic pent-up demand has been diminishing and long stretches of high inflation have also been hurting consumption in recent quarters. Moreover, the government’s preferred “multiplier effect” driver of public capex to spur growth has also slipped this year dragging growth to an estimated 6.4% this fiscal even as global headwinds remain dodgy.
Several economists, and top Central bank officials have been advocating a consumption push to restoke growth impulses and catalyse slack private investments. Ms. Sitharaman seems to have listened and agreed wholeheartedly.
“Slabs and rates are being changed across the board to benefit all 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,” she said, adding that the changes will translate into ₹1 lakh crore of foregone revenue
At a press conference later in the day, she asserted that the tax rate changes and a proposed new Income Tax Bill to be introduced in Parliament next week, are a strong reflection that the government is responsive to the “voice of the people”. The Minister also dismissed suggestions that the Centre has given up on ‘pump priming’ the economy through public capex.
“There is no reduction in the public spending on capital expenditure, let me put that upfront. We continue to place emphasis on the multiplier effect that capital expenditure done by government has shown, and sustained it,” Ms. Sitharaman emphasised.
The capital expenditure by the Centre for this year has been revised to about ₹10.18 lakh crore from ₹11.11 lakh crore originally estimated, but has been raised by 10.1% to ₹11.2 lakh crore for 2025-26. Moreover, the 50-year interest-free loans for States to spend on infrastructure building have been retained at ₹1.5 lakh crore.
Along with a revamped Income Tax law, which Ms. Sitharaman had indicated in her last Budget presented in July 2024, she also followed through on a promise to review India’s custom duty structure, by proposing to delete seven of 15 tariff rates.
The tariff structure is not only being simplified but the rates are being reduced, she stressed, in a possible signal to U.S. President Donald Trump who has been clubbing India with China in his remarks threatening high tariffs on products from outside America.
“So the usual narrative, which goes on saying ‘Is India being too heavy on tariffs?’ No, you will find that they have been drastically reduced and also simplified,” the Minister said.
DK Srivastava, member of the Fourteenth Finance Commission and chief policy advisor at EY India said the Budget has introduced a fiscal stimulus for growth through the tax rejigs to raise disposable income, an increase in the Centre’s capex and the continued support for States’ capex.
“This stimulus is limited in terms of magnitude and would prove to be effective along with other fiscal and monetary measures aimed at stimulating private investment. In particular, some realignment of customs duty tariff for making several inputs cheaper through zero or concessional basic customs duties may lead to addition in domestic manufacturing capacity,” he averred.
The stimulus for households is unlikely to upset the fiscal consolidation path, with the Finance Minister projecting fiscal deficit would drop from 4.8% of GDP this year to 4.4% of GDP in 2025-26, a tad under the 4.5% target the Centre had set.
For the five years from 2026-27 to 2030-31, the government has changed its fiscal anchor to ‘debt to GDP’ from the fiscal deficit, and aims to achieve a debt to GDP ratio of 50% (plus or minus 1%) by March 31, 2031. In 2025-26, this ratio is estimated to be around 56.1% of GDP.
“This approach would provide requisite operational flexibility to the Government to respond to unforeseen developments. At the same time, it is expected to put Central Government debt on sustainable trajectory in a transparent manner,” the Minister said in a fiscal policy statement mandated by the Fiscal Responsibility and Budget Management Act, 2003.
Ms. Sitharaman also announced a flurry of measures to make life easier for businesses, taking a cue from the Economic Survey’s recommendation to deregulate, ‘get out of the way’ and enhance economic freedom. Apart from a fresh move to decriminalise about 100 legal provisions across statutes, Ms. Sitharaman said the new income tax law will reaffirm the commitment of the tax department to “trust first, scrutinize later”.
Published – February 01, 2025 11:56 pm IST
