
India's economic future hinges on a delicate balance: igniting consumption-led growth while maintaining fiscal discipline. The 2025 budget embraces this challenge, strategically deploying tax cuts and increasing purchasing power along with maintaining fiscal prudence.
Eliminating income tax for individuals with up to Rs 12 lakh of annual income will increase disposable income, empowering consumers to drive demand and fuel growth. This is not simply a tax cut; the downstream impact of increased consumption will likely trigger the much-needed private capex expansion.
The budget catalyses the creation of a virtuous cycle, where consumption fuels demand, which in turn shall fuel investment. This focus on stimulating spending is judiciously paired with the FM’s unwavering commitment to fiscal prudence, as evidenced by the 2025-26 fiscal deficit target of 4.4% and the revised current target of 4.8%.
This was a delicate balancing act, and the budget appears to have found the proper equilibrium. Investing in MSME Growth India's 57 million MSMEs and 150,000+ startups are crucial for growth and job creation, making them central to Budget 2025's strategy.
Doubling the credit guarantee coverage for MSMEs to Rs 10 crore, unlocking an additional Rs 1.5 lakh crore in potential credit over the next 5 years, increasing FDI in the insurance sector to 100%, and increasing the collateral-free loan limit to Rs 1.5 lakh are significant steps. These measures are designed to stimulate investments and aid MSMEs, a key engine for job creation.
Zooming out, this job creation directly translates into increased purchasing power, further fueling the consumption cycle and creating a positive feedback loop. Encouragement to the Startup Ecosystem The Budget also provides encouraging initiatives for the start-up ecosystem, including a commitment to invest an additional Rs 10,000 crore into start-ups through a fund-of-funds.
The reduced guarantee fee of 1% for startups in 27 crucial sectors further strengthens support by addressing a critical funding challenge and enabling businesses to access the capital needed to scale. Additionally, the five-year extension in eligibility for newly incorporated companies to avail of startup tax exemptions is a welcome move, encouraging entrepreneurship and support for emerging ventures.
Further, it was encouraging to see a focus on financial inclusion, and empowering individuals at all levels of the economic ladder. Introducing UPI-linked credit cards with a Rs 30,000 limit, customized credit cards for micro-enterprises, and enhanced limits of up to Rs 5 lakh on Kishan Credit Cards further not only expands credit access but also encourages digital payments across demographics.
This inclusive boost to demand and consumption across all economic classes could be a powerful engine for future success. Looking Forward The budget has established a strong support structure for startups. While the startup ecosystem will benefit from the increased investments and consumer spending, a few anticipated incentives hold significant potential to accelerate the positive momentum.
Deferring ESOP taxation—currently levied upon exercise—until the time of liquidity, along with improved R&D subsidies and tax deductions, could be vital in fueling innovation and investment, particularly for startups looking to scale significantly. The industry remains hopeful that these measures will be considered in future budget announcements in order to propel India into a global startup powerhouse.
The FM's chosen fiscal direction is positive. The focus on consumption, coupled with commendable fiscal prudence, establishes a solid foundation for economic growth. Tax cuts are a welcome move, and targeted support for MSMEs and startups is good for long-term growth, eventually stimulating private capex.
Seamless implementation and effective monitoring of these policies are critical for realizing MSMEs’ full potential and ensuring a robust and inclusive financial ecosystem. India’s economic future will need to be driven by a combination of strategic vision and flawless execution. The Government has laid the groundwork—now it's time for businesses to play their part, invest, and drive the next wave of India's economic growth.
(The author is Chief Financial Officer, Razorpay)