The Union Budget 2025-26 is in line with the government’s sustained efforts over the past few years to bolster economic growth and development. The provisions of the Budget indicate the continuation of the government’s strategic approach toward economic expansion, fiscal prudence, and sectoral growth.
The multiplier effects of the IT cuts
One of announcements in the Budget that has been most widely welcomed is the significant cut in personal income-tax, with complete exemption extended to individuals earning up to ₹12 lakh per year. This limit will be ₹12.75 lakh for salaried tax-payers because of the standard deduction of ₹75,000. This is a major relief for the middle class, and is expected to have a multiplier effect on the economy.
Higher disposable income can trigger a virtuous cycle of higher consumption, increased demand, and improved business performance. This, in turn, will result in higher indirect tax collections and further economic expansion. Specifically, greater consumer spending will benefit industries such as retail, real estate, and automobile manufacturing, boosting employment opportunities.
Another key highlight of the Budget is the allocation of ₹11.2 lakh crore for capital expenditure for 2025-26, marking an increase of nearly 10% from the actual expenditure in the current fiscal year. This enhanced spending can drive infrastructure development, boost employment generation, and catalyse economic activity across sectors. And, of course, it strengthens the nation’s logistical and industrial backbone, ensuring long-term sustainable growth.
In a major thrust to manufacturing, the Finance Minister, Nirmala Sitharaman, has also announced the establishment of a National Manufacturing Mission. The aim is to promote the ‘Make in India’ initiative by covering small, medium, and large industries, providing policy support, execution road maps, and governance frameworks in collaboration with central Ministries and States. The mission is expected to enhance domestic capabilities, reduce import dependency, and encourage foreign investment. While the finer details are yet to be examined, it appears to be a well-conceived initiative. By streamlining regulatory processes, offering incentives, and creating an enabling business environment, this initiative has the potential to position India as a global manufacturing hub.
Focus on labour-intensive sectors
In consonance with the government’s commitment to job creation, the Budget is focused on labour-intensive sectors such as tourism, food processing and leather. These industries have historically been major employment generators and contribute substantially to India’s export earnings. By providing targeted incentives and streamlining regulations, the Budget aims to enhance productivity, improve competitiveness, and create new job opportunities in these sectors.
On the infrastructure side, we see the Budget focus on the maritime sector through the announcement of a new Maritime Development Fund. This will give a boost to the marine economy, especially in the coastal States of the country, creating growth opportunities for both trade and the blue economy-related segments. The Federation of Indian Chambers of Commerce and Industry (FICCI) has also noted with interest the plan for flight connectivity to 120 new destinations under a modified Ude Desh ka Aam Naagrik (UDAN) scheme as this too will enable new economic opportunities in newly connected regions of the country as emerging growth centres.
The Budget has introduced the Prime Minister Dhan-Dhaanya Krishi Yojana, a targeted initiative designed to enhance agricultural productivity and improve rural livelihoods. The programme will cover 100 districts with low productivity, moderate crop intensity, and below-average credit access, in partnership with State governments.
This initiative aims to promote crop diversification and sustainable agricultural practices, enhance post-harvest storage infrastructure, improve irrigation facilities, and facilitate access to credit. With an estimated 1.7 crore farmer-beneficiaries, this has the potential to transform the agricultural landscape, increase rural incomes, and drive economic activity in India’s hinterlands. Higher rural purchasing power will indirectly benefit the corporate sector, particularly those involved in consumer goods and agricultural supply chains.
Another commendable aspect of the Budget is the government’s resolve to reduce the fiscal deficit from 4.8% in 2024-25 to 4.4% in 2025-26. This move is critical as sound public finance management is a sine qua non for sustained economic growth. A lower fiscal deficit will help stabilise inflation, increase investor confidence, and create a more robust macroeconomic environment.
A boost to ease of doing business
Rationalisation of the duty structure and simplification of the tariff framework by removing an additional seven tariff rates is a noteworthy announcement. While this may sound simple, it is a major step towards simplification and enhancing ease of doing business for industry. The rationalisation of cess by ensuring that no more than one cess or surcharge would be levied is a crucial step toward ensuring a fairer and more predictable taxation regime, benefiting both industry and consumers. The Budget has also addressed the issue of inverted duty structure for some products, which is a welcome step. This would enhance trade competitiveness and encourage greater participation of domestic firms in global supply chains.
The continued focus on capital expenditure, manufacturing, and labour-intensive sectors, combined with fiscal prudence and income-tax relief, sets the stage for robust growth in the years ahead.
While the finer details of various schemes and policies will need closer examination, the overarching framework of the Budget suggests a proactive, forward-looking, and growth-oriented strategy. As businesses and stakeholders begin to analyse and adapt to the new measures, the true impact of Budget 2025-26 will unfold in the next few months.
Vijay Sankar is Vice President, The Federation of Indian Chambers of Commerce and Industry (FICCI)
Published – February 03, 2025 12:08 am IST
