On February 1, 2025, Union Minister of Finance and Corporate Affairs, Nirmala Sitharaman, presented the Union Budget 2025–26 in Parliament. She emphasised that under the leadership of Prime Minister Narendra Modi, India is on its path to unlocking its vast potential for greater prosperity and global standing. Citing the renowned Telugu poet Shri Gurajada Appa Rao’s quote, “A country is not just its soil; a county is its people”, the finance minister highlighted the budget’s theme of ‘Sabka Vikas’ (inclusive development), with an outlined vision of a ‘Viksit Bharat’ (developed India) by 2047.
To realise the aim of ‘Sabka Vikas’, there is a need to stimulate a balanced growth across all regions. ‘Viksit Bharat’ envisions a nation where poverty is eradicated and every citizen has access to quality education and affordable, comprehensive health care. It aims for a workforce that is fully skilled and employed in meaningful jobs, with women participating in around 70 per cent of economic activities. Additionally, farmers would play a crucial role in establishing India as the ‘food basket of the world’.
The proposed development initiatives cover ten key areas aimed at benefiting the poor (Garib), youth, farmers (Annadata) and women (Nari). These include enhancing agricultural growth and productivity, fostering rural prosperity and resilience and ensuring inclusive growth for all. The plan also focuses on boosting manufacturing through the ‘Make in India’ initiative, supporting micro, small, and medium enterprises (MSMEs) and promoting employment-driven development. It emphasises investing in people, economy, and innovation, securing energy supplies, encouraging exports and nurturing innovation to drive progress across various sectors.
Budget Estimates and Fiscal Overview
- Total receipts (excluding borrowings): Rs 34.96 lakh crore
- Total expenditure: Rs 50.65 lakh crore
- Net tax receipts: Rs 28.37 lakh crore
- Fiscal deficit: 4.4% of GDP
- Gross market borrowings: Rs 14.82 lakh crore
- Capital expenditure: Rs 11.21 lakh crore (3.1 per cent of the GDP)
Four Engines of Development
As identified by the budget, the path to development is driven by four key engines: agriculture, MSMEs, investment, and exports. These sectors propel progress forward, fuelled by reforms that ensure growth and transformation. The guiding principle throughout this journey is inclusivity, with the ultimate goal being to reach Viksit Bharat, a developed and prosperous nation.
The budget seeks to implement transformative reforms across six key areas: taxation, the power sector, urban development, mining, the financial sector and regulatory frameworks.
Agriculture: The Primary Engine for Development The budget introduced the Prime Minister Dhan-Dhaanya Krishi Yojana in collaboration with states, covering 100 districts that are characterised by low productivity, moderate crop intensity, and below-average credit availability. The initiative aims to enhance agricultural productivity, promote crop diversification, and sustainable agricultural practices improve post-harvest storage, strengthen irrigation facilities, and ensure better access to both long-term and short-term credit for farmers. A Makhana Board will be set up in Bihar to enhance the production, processing, value addition, and marketing of makhanas (fox nuts).
A new multi-sectoral Rural Prosperity and Resilience programme would be launched in partnership with states to address underemployment in agriculture. The programme focuses on providing skills, investments, and technological support to boost the rural economy. It aims to create significant opportunities in rural areas, particularly for rural women, young farmers, small farmers, and landless families.
The programme will adopt global and local practices with support from multilateral development banks, covering 100 developing agricultural districts in Phase-1.
The government is also advancing the National Mission for Edible Oilseed to achieve self-sufficiency in edible oils and launching a six-year Mission for Aatmanirbharta in Pulses, particularly for tur, urad, and masoor dals. National Agricultural Cooperative Marketing Federation (NAFED) and National Cooperative Consumers’ Federation (NCCF) would procure these three pulses over the next four years from the registered farmers who enter into agreements with these agencies.
The National Mission on High Yielding Seeds would focus on developing and promoting seeds with high yields, pest resistance, and climate resilience, expanding seed varieties and make them commercially available.
A five-year Cotton Productivity Mission will be launched to enhance yield, sustainability, and extra-long staple cotton production with scientific and technological support. This initiative aligns with the 5F vision for the textile sector, i.e., ‘Farm to Fibre to Factory to Fashion to Foreign’ ensuring increased farmer incomes and a steady supply of quality cotton.
The government would enhance sustainable fisheries from the Exclusive Economic Zone and High Seas, focusing on the Andaman and Nicobar and Lakshadweep Islands.
The government would raise the Kisan Credit Card (KCC) loan limit from Rs 3 lakh to Rs 5 lakh for farmers, fishermen, and dairy farmers and reopen dormant urea plants to boost urea production. A new plant in Namrup, Assam, would further increase the urea supply.
India Post, with its vast rural network, India Post Payment Bank and Dak Sevaks, will be strengthened to drive the rural economy. It will expand into major logistics provider, supporting Vishwakarmas, entrepreneurs, women, self-help groups, and large business organisations.
Additionally, the government would support National Cooperative Development Corporation’s (NCDC) lending operations for the cooperative sector.
MSMEs: Driving the Second Engine of Growth India’s manufacturing and services sector, particularly MSMEs, plays a pivotal role in the economy, with over one crore registered MSMEs employing 7.5 crore people and contributing 36 per cent to manufacturing and 45 per cent to exports. To foster growth, the government would increase the investment and turnover limits of MSMEs to 2.5 and 2 times, respectively. This aims to improve efficiency, technological advancement, and capital access, driving employment generation, especially for youth. Additionally, credit guarantee covers would be raised for micro, small enterprises, start-ups, and exporter MSMEs, providing better financial support.
A National Institute of Food Technology, Entrepreneurship, and Management would be established in Bihar to enhance food processing and increase farmer incomes. Additionally, the National Manufacturing Mission would drive ‘Make in India’ and Clean Tech manufacturing, strengthening domestic production and sustainability.
The government would introduce customised credit cards with Rs 5 lakh limit for micro enterprises, issuing 10 lakh cards in the first year. Alternate Investment Funds (AIFs) for start-ups have garnered commitments exceeding Rs 91,000 crore supported by a Rs 10,000 crore Fund of Funds established by Government with an additional Rs 10,000 crore Fund of Funds. A scheme would further be launched for five lakh first-time women and minority entrepreneurs, offering term loans up to
Rs 2 crores during the next five years and supporting skill-building for entrepreneurship.
To boost employment and entrepreneurship in labour-intensive sectors, the government would implement policies and initiatives. The footwear and leather sector would receive focused support for design capacity, machinery and non-leather footwear production. This scheme would create 22 lakh jobs, generate Rs 4 lakh crore in turnover and increase exports of over Rs 1.1 lakh crore. Additionally, a plan to make India a global toy hub would focus on developing clusters and a manufacturing ecosystem for innovative, sustainable toys under ‘Made in India’ brand.
Investment: Fuelling the Third Engine of Growth The finance minister emphasised investment as the third engine of growth focusing on people, economy, and innovation.
The government would enhance investments in people through various initiatives like Saksham Anganwadi and Poshan 2.0, which will continue supporting beneficiaries with increased cost norms. Recognising gig workers, the government would provide identity cards, e-shram registration, and PM Jan Arogya Yojana health care for 1 crore workers with revamped PM SVANidhi Scheme for 68 lakh street vendors supporting socio-economic upliftment. Around 50,000 Atal Tinkering Labs would be set up in schools and broadband would be extended to rural schools and health centres. The Bharatiya Bhasha Pustak Scheme would digitise Indian language books, while five National Centres of Excellence would be created to upskill youth for manufacturing. A Rs 500 crore Centre for Artificial Intelligence (AI) education would further be established.
For economic growth, a Rs 1.5 lakh crore fund would be allocated for 50-year interest-free loans to states. The second Asset Monetisation Plan (2025–30) aims to reinvest Rs 10 lakh crore into new projects. The Jal Jeevan Mission would extend until 2028, for 100 per cent potable water coverage, while a Rs 1 lakh crore Urban Challenge Fund will support city re-development through the proposals for ‘Cities as Growth hubs’, ‘Creative redevelopment of Cities’, and ‘Water and Sanitation’. Energy plans include 100 GW nuclear power by 2047 and Rs 20,000 crore for small modular reactors. The Maritime Development Fund will expand shipbuilding, supported by policy reforms.
The Special Window for Affordable and Mid-Income Housing Investment Fund (SWAMIH Fund) of Rs 15,000 crore will accelerate one lakh affordable homes, while PM Gati Shakti data will support private infrastructure projects.
Top 50 tourist sites will be developed through state partnerships, with MUDRA loans for homestays, e-visa reforms, and performance-based incentives boosting tourism especially spiritual tourism focused on Buddhist sites and medical tourism under Heal in India initiative. Additionally, Greenfield airport would be developed in Bihar, along with financial aid for Western Kosi Canal ERM Project, benefitting farmers in Mithilanchal.
In innovation, Rs 20,000 crore would fund private-sector driven research and development. The National Geospatial Mission would assist urban planning and the Gyan Bharatam Mission would conserve one crore manuscripts, creating a National Digital Repository for Indian knowledge systems. A Deep Tech Fund of Funds would be explored to drive next-gen start-ups. Additionally, a Second Gen Bank would be established to ensure future food and nutritional security.
Exports: The Fourth Engine An Export Promotion Mission would be launched with sector-specific targets, supported by the Ministries of Commerce, MSME and Finance to ease access to export credit and help MSMEs navigate non-tariff barriers. A digital platform, BhartTradeNet (BTN), would be created for trade documentation and financing, complementing the Unified Logistics Interface Platform and aligned with international practices. The government would promote domestic manufacturing for global supply chain integration and focus on Industry 4.0 opportunities, particularly in the electronic equipment sector. A national framework would guide states on developing Global Capability Centres in Tier-II cities. Additionally, infrastructure upgrades for air cargo and perishable goods would be facilitated, along with streamlined customs protocols.
Reforms
Strengthening the Financial Sector The tax department reaffirms its commitment to a ‘trust first, scrutinise later’ approach. A new income tax bill was introduced in the Lok Sabha on February 13, 2025. The Union Budget 2025–26 places trust in the middle class for nation-building by introducing new direct tax slabs under the revised income tax regime. It proposes that individuals with a total income of up to Rs 12 lakh per annum, or an average monthly income of Rs 1 lakh (excluding special rate income like capital gains), would be exempt from paying income tax. Additionally, salaried individuals earning up to Rs 12.75 lakh per annum would pay no tax due to the standard deduction of
Rs 75,000.
The FDI limit in the insurance sector would increase from 74 per cent to 100 per cent, available for companies investing the full premium in India. Foreign investment conditions would be simplified. The National Bank for Financing Infrastructure and Development (NaBFID) would introduce a Partial Credit Enhancement Facility for infrastructure bonds. Public Sector Banks would implement a Grameen Credit Score for self-help group members and rural residents. A forum for regulatory coordination on pension products would be established. The revamped Central KYC Registry would roll out in 2025, simplifying periodic updates. Mergers approval processes would be streamlined. Bilateral Investment Treaties would be revised to encourage foreign investment. A new light-touch regulatory framework would be introduced to keep up with technological advancements. A high-level committee would review on non-financial sector regulations and make recommendations to improve ease of doing business. An Investment Friendliness Index would be launched in 2025. A mechanism would evaluate the impact of current financial regulations. The government would introduce Jan Vishwas Bill 2.0 to decriminalise more than 100 legal provisions building on Jan Vishwas Act, 2023, which decriminalised more than 180 legal provisions.
Fiscal Policy The government aims to maintain a fiscal deficit each year to ensure that central government debt declines as a percentage of GDP, with a six-year roadmap outlined in the Fiscal Responsibility and Budget Management statement. The revised estimate for total receipts (excluding borrowings) is Rs 31.47 lakh crore, with net tax receipts of Rs 25.57 lakh crore. The total expenditure is Rs 47.16 lakh crore, with Rs 10.18 lakh crore allocated for capital expenditure. The fiscal deficit is 4.8 per cent of GDP. For 2025–26, total receipts are projected at Rs 34.96 lakh crore with a fiscal deficit of 4.4 per cent GDP.
Indirect Taxes The finance minister proposed removing seven additional tariff rates. This is over and above the seven tariff rates removed in 2023–24 budget. After this, there would only be eight remaining tariff rates including ‘zero’ rate. Appropriate cess would be applied to maintain the effective duty incidence, with marginal reductions on select items. Only one cess or surcharge would be levied on goods moving forward.
To provide relief to patients, 36 lifesaving drugs for cancer, rare and chronic diseases would be exempted from basic customs duty (BCD), with six medicines attracting a concessional five per cent customs duty. Additionally, 37 more medicines and 13 new patient assistance programmes would be added, offering full BCD exemption when supplied free of cost to patients.
The government has proposed several measures to promote domestic manufacturing and job creation. This includes full exemption on BCD for minerals like cobalt, lithium-ion battery scraps, lead, zinc, and 12 more critical minerals. Additionally, to boost technical textiles like agro-textiles, medical textiles, and geo-textiles, two more types of shuttleless looms will be added to the list of fully exempted textile machinery. To address inverted duty structures, the BCD on Interactive Flat Panel Displays (IFPDs) will be raised from 10 per cent to 20 per cent. BCD exemptions would be extended to 35 capital goods for EV and 28 for mobile phone battery manufacturing. Also, raw materials for shipbuilding would continue to be exempt for another decade. Furthermore, BCD on carrier grade ethernet switches would be reduced to 10 per cent.
To support handicraft exports, the export period would be extended from six months to one year, with a possible three-month extension. Nine additional items would be added to the list of duty-free inputs. BCD exemption on the wet blue leather would boost domestic value addition, while export duty on the crust leather would be reduced from 20 per cent. To enhance seafood competitiveness, BCD on Frozen Fish Paste and fish hydrolysate would be lowered to 5 per cent from 15 per cent. Similar export rules for foreign goods imported for repairs would now apply to railway goods as well.
To improve ease of doing business, a two-year time limit, extendable by one year, would be introduced for finalising Provisional Assessments under the Customs Act. A new provision allows importers/exporters to voluntarily declare material facts and pay duty with interest without penalty, unless an audit or investigation has begun. Additionally, the time limit for end-use of imported inputs would be extended from six months to one year and importers would file quarterly statements instead of monthly ones for better operational flexibility.
Direct Taxes The tonnage tax scheme which is currently available only to sea-going ships, would be extended to inland vessels registered under the Indian Vessels Act, 2021, to promote inland water transport. The startup incorporation period for tax benefits would be extended by five years, allowing benefits for startups incorporated before April 1, 2030. Specific benefits would be provided to ship-leasing units, insurance offices, and treasury centres in Indian Financial System Code, while the investment deadline for Sovereign Wealth Funds and Pension Funds in infrastructure extended to March 31, 2030. Additionally, the tax certainty for Alternative Investment Funds and extended investment timelines for sovereign wealth and pension funds in infrastructure would be offered until 2030.
Reactions to the Budget
The Union Budget 2025–26 has elicited varied responses from global financial agencies, policymakers, and industry leaders. While some have praised its focus on fiscal prudence and investment-driven growth, others have raised concerns about tax structures and revenue sustainability.
- Moody’s Ratings (Christian de Guzman, Senior Vice President): Moody’s ratings acknowledged the government’s commitment to fiscal consolidation but expressed concerns over the impact of tax relief measures on revenue generation. The agency highlighted that while capital expenditure is a positive step, it remains to be seen whether tax reductions will sufficiently stimulate growth. Moody’s has retained India’s growth projection at 6.6 per cent for the upcoming fiscal year.
- Reserve Bank of India (RBI): In response to the budget, the RBI cut its key repo rate by 25 basis points to 6.25 per cent, marking its first-rate reduction since May 2020. The move is expected to encourage lending and stimulate economic growth, especially in the face of global economic uncertainties.
- Federation of Indian Chambers of Commerce and Industry (FICCI): Harsha Vardhan Agarwal, President, FICCI welcomed the investment-driven growth strategy, emphasising that a combination of fiscal measures and monetary policy adjustments would help sustain economic momentum. The organisation also praised the increased capital expenditure allocation, which is expected to boost infrastructure and job creation.
- N.K. Singh (Chairman, 15th Finance Commission): N.K. Singh commended the government’s focus on fiscal responsibility and increased disposable income, predicting that India’s debt-to-GDP ratio will decline to just above 50 per cent by 2030–31. He noted that maintaining fiscal discipline while ensuring economic growth would be key to long-term stability.
- Sanjiv Puri (President, Confederation of Indian Industry): Sanjiv Puri applauded the budget’s focus on consumption, investment, and employment, emphasising that tax relief measures would provide a much-needed boost to the middle class and increase consumer spending.
- Surjit Bhalla (Former IMF Executive Director): Surjit Bhalla compared the budget’s structural reforms to those introduced during India’s 1991 economic liberalisation. However, he pointed out inconsistencies in tax slabs, particularly the Rs 60,000 tax burden on individuals earning just Re 1 above Rs 12 lakh, calling for a more streamlined and equitable tax policy.
- Associated Chambers of Commerce and Industry of India (Assocham): Assocham lauded the government’s continued capital expenditure push but stressed that MSMEs require targeted policy support, including better access to credit and incentives for digital adoption, to remain competitive in the global market.
Conclusion
The Union Budget 2025–26 has been broadly welcomed for maintaining fiscal discipline and prioritising investment-led growth. However, concerns persist regarding taxation structures, revenue mobilisation, and long-term economic sustainability. The real impact of the budget will depend on effective policy execution and India’s ability to navigate global and domestic economic challenges in the coming time.
© Spectrum Books Pvt. Ltd.
