Editorial 1: Beyond tax cuts, a closer read of the Union Budget

Context

Many of the measures in manufacturing, agriculture, and climate action, lack rounded strategies

Introduction

The Union Finance Minister, Nirmala Sitharaman’s presentation of the Union Budget on Saturday, February 1, was against the backdrop of pressing macroeconomic challenges — persistently high taxes and unemployment squeezing the middle-income class, subdued private investment, mounting external vulnerabilities that threaten to derail the growth story, and a looming fiscal overhang. While the Finance Minister laid out an ambitious road map for Viksit Bharat, spanning agriculture, manufacturing, micro, small and medium enterprises (MSME), social welfare, and infrastructure, the Budget’s policy announcements and fiscal plans need closer scrutiny.

Targets that raise questions

Fiscal Consolidation and Revenue Projections

• • First, the fiscal consolidation target of 4.4% of GDP in FY26 is a key highlight of the Budget.
  • However, achieving this target hinges on ambitious revenue projections, including an 11.2% growth in total tax revenues and a 14.4% increase in income tax revenues compared to FY25 estimates.
  • These assumptions appear overly optimistic given the significant tax cuts announced in the Budget and the prevailing economic headwinds such as softening domestic consumption and weakening external demand.
  • Much will also depend on the success of the second asset monetisation plan (2025-30), announced in the Budget.
  • The underperformance of the previous asset monetisation programme raises valid concerns. Furthermore, the estimated ₹11.54 lakh crore in net market borrowings risks crowding out private capital at a critical juncture when credit demand remains tepid.
  • Achieving the ambitious revenue targets will require improved tax buoyancy, more efficient tax administration, and realistic asset monetisation strategies to ensure that the fiscal consolidation plan remains on track.

Personal Income-Tax Revisions

• • Second, the revisions in personal income-tax rates and slabs under the new tax regime, exempting incomes up to ₹12 lakh from tax (after factoring in the rebate benefit), and significantly reducing tax liabilities across various income brackets, offer welcome relief to middle-income taxpayers.
  • However, while these changes are likely to boost disposable income, they shall come at a cost — of ₹1 lakh crore in foregone direct tax revenue, which, in turn, could constrain the government’s ability to fund critical developmental initiatives.
  • The tax-base erosion also comes when household savings have shown a structural decline over the past decade, dropping to 18.4% of GDP in FY23 (Economic Survey 2024-25).
  • This raises pressing questions about the long-term sustainability of these tax cuts, particularly when public investments in infrastructure and social welfare remain critical to drive inclusive economic growth.

Manufacturing and MSME Development

• • Third, on the manufacturing front, the Budget reiterates India’s ambition to emerge as a global manufacturing powerhouse.
  • The Economic Survey 2024-25 flagged India’s underperformance in manufacturing, which accounts for a mere 17% of GDP.
  • While production-linked incentives (PLIs) have shown moderate success in sectors such as electronics, their scalability and long-term impact remain uncertain.
  • In that light, the Budget announcements on enhanced credit facilities for MSMEs and the launch of a National Manufacturing Mission aimed at improving ease of doing business, to foster a future-ready workforce, and promote clean-tech manufacturing, are important steps.
  • The revision of MSME classification criteria — increasing investment limits by 2.5x and doubling turnover thresholds— may improve scale economies.
  • However, the measures fall short of addressing core competitiveness issues such as regulatory inefficiencies, infrastructure gaps, and low innovation capacity.
  • The absence of concrete measures to boost industrial research and development — currently at a dismal 0.64% of GDP — undermines India’s ability to compete with innovation-driven economies such as China and Germany.
  • While the Budget’s focus on manufacturing is a step in the right direction, achieving global competitiveness will require deeper structural reforms and sustained investment in innovation and infrastructure.

The gaps remain in agriculture

Agriculture: Productivity and Climate Resilience

• • Fourth, agriculture, a key pillar of the economy, received significant attention through initiatives such as the Prime Minister Dhan-Dhaanya Krishi Yojana and the National Mission on High-Yielding Seeds.
  • These measures are with the aim of enhancing productivity and climate resilience, which are critical for food security.
  • The increase in the Kisan Credit Card (KCC) loan limit from ₹3 lakh to ₹5 lakh, along with targeted interventions in 100 low-productivity districts, signals a strategic pivot from blanket subsidies to precision support, empowering farmers with greater financial flexibility.
  • However, the measures fall short of addressing systemic inefficiencies in agricultural markets. The Budget lays an emphasis on credit enhancements, yet the focus on short-term loans perpetuates the dependency of farmers on debt without addressing the issues of price volatility or market access.
  • Moreover, the absence of concrete measures to promote agricultural exports — particularly as India eyes leadership in millets and natural farming — represents a missed opportunity.

External Sector and Trade Strategy

• • Fifth, while the Budget introduces some promising measures for the external sector, significant gaps remain unaddressed.
  • Services exports, particularly in IT and business process outsourcing, continue to grow at a robust 10.5% CAGR, but budgetary efforts to diversify the export portfolio remain insufficient.
  • Trade facilitation initiatives such as Bharat Trade Net (BTN) and export credit support for MSMEs, which were announced in the Budget, are positive steps but lack the scale required to tackle India’s persistent trade deficits.
  • Moreover, the challenges posed by the depreciation of the rupee and declining forex reserves require a more ambitious export strategy.
  • The fiscal push to value-added sectors such as pharmaceuticals, electronics, renewable energy, and high-value agricultural products could have strengthened India’s position in global supply chains and enhanced export competitiveness.

Not a transformative push

• Budget signals intent on climate action and clean energy, its financial commitments reveal a cautious, incremental approach rather than a transformative push.
• The Budget’s focus on supply-chain resilience — through incentives for lithium-ion battery recycling, duty exemptions on critical minerals, and support for domestic solar photovoltaic and battery manufacturing — is a pragmatic move to reduce import dependence.
• Without a parallel investment in grid modernisation, energy storage, and industrial decarbonisation, the transition to a low-carbon economy will remain fragmented.

Conclusion

The Budget’s fiscal outlays will eventually be judged by how effectively they address the fundamental trade-offs of Indian growth: how to unleash private enterprise while ensuring inclusive development; how to boost consumption without compromising savings, and how to accelerate growth while maintaining macroeconomic stability. Ultimately, the credibility of execution and the government’s willingness to course-correct where necessary will matter.

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Editorial 2: A Budget that is forward-looking and growth-oriented

Context

There is every indication that the approach toward economic expansion, fiscal prudence, and sectoral growth will continue

Introduction

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 the most widely welcomed announcements in the Budget is the significant cut in personal income-tax.
  • A complete exemption is extended to individuals earning up to ₹12 lakh per year.
  • For salaried taxpayers, the limit will be ₹12.75 lakh, due to 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 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.

Capital Expenditure Allocation

• • 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.
  • It strengthens the nation’s logistical and industrial backbone, ensuring long-term sustainable growth.

National Manufacturing Mission

• • In a major thrust to manufacturing, Finance Minister Nirmala Sitharaman 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

• 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.
• Maritime cevelopment and Connectivity: On the infrastructure side, the Budget focuses 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.
• Prime Minister Dhan-Dhaanya Krishi Yojana: 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.
• Fiscal Deficit reduction: 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.
• Focus on Growth: 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.

Conclusion

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.