Giveaway budgets arrive ahead of elections, not after.
On Tuesday, however, Finance Minister Nirmala Sitharaman made an exception to present Budget 2025 that gives all the way, but also takes some.
The coalition government's first full budget saw the much-needed announcements coming after the fatal hour of an embarrassing electoral loss. Last month, voters have conveyed to the government in no uncertain terms that first comes love, and only then will they extend their hand in a marriage, which will probably last longer than three terms.
So, at the appointed hour on Tuesday, Sitharaman walked in with a loaded wallet and a firm heart to present Budget 2025 that modestly catered to all the world and his wife.
Mindful of the expectations, she listed out her priority groups at the very outset -- farmers, youth, MSMEs and the middle class -- and went on to announce five new employment schemes targeting 4.1 crore youth, allocating Rs 2.66 lakh crore for rural development, Rs 3 lakh crore for women welfare and Rs 1.52 lakh crore for agriculture and allied sectors.
Struggling MSMEs and the middle class too rated a specific mention within the first 10 minutes of the budget -- a first among all Sitharaman's budgets till date. Amid the opposition uproar, the NDA's two key allies -- Bihar and Andhra Pradesh -- were served the tastiest cheesburger. Put another way, FY25 budget packs in all the elements that make it an out-and-out debt-of-gratitude budget, as it looks to the future, as much as it looks back on the past.
The unprecedented capacity creation via infrastructure, access to basics services like banking, drinking water, electricity, housing and toilets, are all fine. But demand side needs urgent attention.
Households, the primary wagon-puller of both direct tax and indirect tax revenue, are seeing the painful reality of price rise in their everyday shopping baskets. So, Sitharaman tinkered with the tax rate structure, but the kindness party ended with that. She, though, vowed to come back with better goodies six months later once the comprehensive review of the Income Tax Act, 1961 gets underway, but none seemed to be dizzied by the thrill of it.
In all, Budget 2025 picked up a Rs 48.21 lakh crore expenditure tab, an 8% increase over FY24's provisional estimate of Rs 44.42 lakh crore. Total receipts were pegged at Rs 32.07 lakh crore, of which net tax proceeds are estimated at Rs 25.83 lakh crore. Gross borrowings are projected at Rs 14.01 lakh crore, not very different from the Rs 14.13 lakh crore set out in the February interim budget.
Notwithstanding the allocation for social sectors, capital expenditure retained its cream filling at Rs 11.11 crore, or 3.4% of the GDP. Yet, Sitharaman stuck to a market-friendly fiscal deficit of 4.9%, which won't rattle rating agencies, who like a wicked stepmother, are ever ready to downgrade India.
In a way, Budget 2025 wars against multiple mandates holding back the Indian economy including the chronic issue of high unemployment and at the same time lays down the blueprint to transform India.
Often, feel-good policies can trump basic economics. But Budget 2025, barring the heart-sinking move on capital gains taxation, does an abso-bloody-lutely decent job of balancing market discipline and the generosity of the welfare state.
Sitharaman and her team are well aware of the basic tenet of public policy -- the consequences of voter neglect are directly proportional to the downfall of sitting governments. And given the revenue rich haul, most expected Sitharaman to go the whole nine yards, as it would take far greater courage and willpower not to act. But truth is, the surplus RBI dividend is a one-off bonanza and Sitharaman is well aware that the central bank is not an Alladin's cave holding abundant riches. So, any spending splurge based on the current year's revenue haul could run the risk of setting the country on a debt spiral. To her credit, Sitharaman made every attempt to uphold the most essential of the old values of fiscal prudence in a broadly beguiling new package.
Tax and the budget
First up, is the juicy peach of personal income taxation. Typically, Part B of any budget speech, which contains tax proposals, can be surprisingly tense. More so on Tuesday, when minutes felt like hours and all taxpayers were waiting to hear was just one good news. It did arrive in some measure, but was needlessly followed by three unwanted changes.
The good part is that Sitharaman tweaked the tax rate structure and about 4 crore salaried taxpayers are likely to save Rs 17,500 in income taxes. While the Rs 0-3 lakh income earner paying zero tax saw no change, the next slab is revised to Rs 3-7 lakh taxed at 5%, Rs 7-10 lakh at 10%, Rs 10-12 lakh at 15%, Rs 12-15 lakh at 20%, and above Rs 15 lakh at 30%.
Disappointingly, the promise of bringing individual tax rates on par with corporate taxes remains unfulfilled. And though the FM did increase the standard deduction limit from Rs 50,000 to Rs 75,000 under the new tax regime, besides increasing the family pension deduction limit from Rs 15,000 to Rs 25,000, they only offered a crumb of comfort.
In all, the revenue foregone will be Rs 37,000 crore in lieu of the tax changes.
The biggest setback was when Sitharaman increased both short and long term capital gains taxation -- Budget 2025's single-most measure that turned what could have been a dream budget into a nightmare budget. As though intruding on personal grief, Sitharaman announced a 5% increase in short-term capital gains to 20% and long-term taxation to 12.5%, even at the risk of becoming the public market's enemy No.1.
Predictably, markets yelled blue murder, with Sensex shedding 1,200 points, while Nifty losing about 400 points. If bourses were in physical form, it's as if you could touch the rage in the room. In fact, markets remained miffed and motionless throughout the budget speech and even refused to whoop it up after hearing the lesser-than-expected fiscal deficit target of 4.9% of GDP.
Jobs
But the ultimate kick in the teeth was when the FM announced measures targeting youth and employment.
For the first time, five new employment schemes were rolled out including providing one month wage to all those persons entering workforce across sectors. The proposed direct benefit transfer of one month's salary or up to Rs 15,000 is expected to benefit 2.1 crore youth. Encouraging job creation in manufacturing, linked to employment of first-time employees, the budget announced an employer-focused scheme incentivizing additional employment of 50 lakh persons. The government will reimburse employers Rs 3,000 per month towards EPFO contributions for two years for each additional employee.
Besides, it also announced a new centrally-sponsored skill development programme covering 20 lakh youth over a five-year period, followed by the setting up of 1,000 industrial training institutes in a hub-and-spoke model. A new internship scheme is being proposed for 1 crore youth across the top 500 top firms with an internship allowance of Rs 5,000 per month and one-time payout of Rs 6,000. To make it attractive for companies, Sitharaman announced that 10% of the internship costs can come from CSR.
Keeping friends happy
Importantly, the NDA's two key allies -- Telugu Desam Party (TDP) and Janata Dal United (JDU) -- walked away with the genie's three wishes, as Sitharaman extended 'special help' to both Bihar and Andhra Pradesh (AP).
While AP got the Rs 15,000 crore fiscal package it sought, Bihar, besides the Rs 26,000 crore infrastructure allocations, received proposals for new airports, medical colleges, sport infrastructure and tourism projects. In a gamechanger for AP, Sitharaman said the government was upholding the Andhra Pradesh Reorganisation Act in its entirety,
Other notable announcements
Meanwhile, MSMEs, who are coursing through the hell's half-acre, got the much-needed attention, with Sitharaman assuring credit support, besides increasing Mudra loans from Rs 10 lakh to Rs 20 lakh. Small and medium businesses can now avail collateral-free loans up to Rs 100 crore with a borrower guarantee. A new credit assessment using digital footprint is also on the cards, while special mention accounts (for delay in dues) will get credit from a government-supported fund to get by.
Some of the other notable announcements include education loans of Rs 10 lakh for students ineligible for any scheme or policy towards higher education in domestic institutions. E-vouchers will be directly given to 1 lakh students every year for annual interest subvention of 3% of the loan amount. Then, the budget also rolled out a massive Rs 10 lakh crore package for urban housing, of which Rs 2.2 lakh crore will be released within the next two years.
Fiscal consolidation is the government's economic soul and so Sitharaman claimed to reduce deficit, heart and soul. She reiterated her commitment to the same debt rule -- namely that debt as a share of national income should be falling at the end of a rolling five-year period. Besides cutting it fine at 4.9% of GDP for FY25, she vowed that the central government's debt will be on a declining path from FY26.
Unlike in the past, Tuesday's speech had absolutely no literary flourishes -- also a first among Sitharaman's budgets -- and though her party colleagues indulged in table-thumping, their support was devoid of the usual Modi-Modi chants -- again a first in recent times. The opposition did disrupt on a few occasions, but barring that, it was a good day for the budget speech.
In its unique way, Budget 2025 has much going for it. But whether voters will buy the government's limited generosity, especially given that general elections are a good five years away is uncertain, just like how happiness in a marriage is entirely a chance. That said, with eyes firmly set on the extremely long-term vision, Budget 2025, hopes that its math and magic will execute a gravity turn, a maneuver that launches spacecrafts into outer space, to place India among middle-income countries.