Budget goes big, growth hinges on hope

Budget 2025-26 has “gone big”, and pinned its hopes on the private sector with repeated mentions of the middle class to boost growth through consumption.
Union Finance Minister Nirmala Sitharaman upon her arrival at the Parliament House complex to present the 'Union Budget 2025-26.
Union Finance Minister Nirmala Sitharaman upon her arrival at the Parliament House complex to present the 'Union Budget 2025-26.Photo | PTI
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Go big, or go home. It’s a mantra often chanted by American sports teams facing an uphill challenge on the field.

Context is critical for politics and public policy. GDP growth was stalling as investment was slower and consumption was trending lower. In the political amphitheatre, the mentors of the Sangh parivar had come to realise that the core constituency backing the BJP was losing hope, triggering worries of diminishing allegiance. In an astute alignment of politics and economics, the Modi government signalled a strategic shift in approach to propel the economy.

Budget 2025-26 has “gone big”, and pinned its hopes on the private sector with repeated mentions of the middle class to boost growth through consumption. Thus far, the BJP-led NDA 3 regime invested its trust and resources in government-led capital expenditure to drive growth. In a significant pivot, the government has loosened the purse strings of the exchequer to make more money available to the people. The evangelists in government, it would seem, have changed their parish.

The instruments of enabling private consumption include an interesting mix of an overhaul of tax rates and change in collection processes. It has slashed income tax rates—deploying the rebate card, the government has made income up to Rs 12 lakh tax-free (Rs 12.75 lakh for salaried taxpayers) and changed the rates to create an additional slab, freeing up to around Rs 1 lakh in the hands of the taxpayer. The cuts will cost the exchequer around Rs 1 lakh crore and comes without any dent on the ambitious plan to trim the fiscal deficit to 4.4 percent of GDP. It is manifest that expectations of the surplus transfer from the RBI—Rs 2.10 lakh crore in 2023-24—bridge the gap.

To improve access to and availability of money to spend, the budget has tweaked the collection processes and expanded the threshold on tax deducted at source. The instrument of TDS is used by governments to wrest taxes in advance, but this budget has allowed the public to retain earnings till the end of the year. This column had had argued for a re-think on how the government taxes senior citizens, given that India is home to over 150 million of those aged 60 and above, a number that is expected to touch 350 million by 2050. The threshold of TDS for senior citizens living on interest income has been raised from Rs 50,000 to Rs 1 lakh, and TDS on income from rent for all from Rs 2.4 lakh to Rs 6 lakh.

The growth equation doesn’t rest just on tax tweaks. The budget carries supply-side initiatives—it has expanded credit to agriculture—raising the limits of the Kisan Credit Card used by 7.7 crore farmers from Rs 3 lakh to Rs 5 lakh—and lending to micro, small and medium enterprises. This column had argued for an Udyam Credit Card on the lines of the Kisan Credit Card, as formal credit touches a mere 20 percent of the sector, by some estimates. The budget promises “customised credit cards with a limit of Rs 5 lakh for micro enterprises registered on the Udyam portal”. Success, though, would depend on how the political regime steers the idea through the warrens of bureaucracy.

The budget is a menu of ideas, some which may be lost in the packaging. Earlier this week, Chief Economic Advisor V Anantha Nageswaran stated rather candidly in the Economic Survey that growth demands the government to ‘get out of the way’ of Indian entrepreneurs. To that end, the budget has announced the creation of a high-level committee for regulatory reforms to review all non-financial “regulations, certifications, licences and permissions”. The bulk of the regulatory cholesterol is in the domain of the state governments. Hopefully, the committee’s mandate includes states.

The budget clearly recognises rising uncertainties in geopolitics, also known as the Trump Factor. The budget promises to clear levels of tariff, and curbs the tendency to impose multiple surcharges and cesses on critical inputs. It has created a pathway for negotiation to overcome the threat of tariffs declared by the US president. The starters on the menu include 100 percent foreign direct investment in the insurance sector, bringing an end to the tenure of shibboleths on FDI dating from the 1990s.

The ‘transaction route’ also includes a nuclear option. The government has promised to push amendments to the Atomic Energy Act and the Civil Liability for Nuclear Damage Act. Most critically, it has declared the sector open to private participation. This—along with the creation of a pathway for small modular reactors, that are necessary for powering the digital transformation, with an outlay of Rs 20,000 crore—opens the window, and maybe a door for nuclear commerce with the US.

The budget reveals an interesting alchemy of intent and objectives. The public capital expenditure programme is static at Rs 11.2 lakh crore (remember, the government couldn’t spend nearly Rs 1 lakh crore from the budgeted Rs 11.11 lakh crore the last time). While there is recognition of the systemic inadequacies—particularly in the states—it is not clear how the government plans to address it.

The maths of the budget poses a question on growth. This year, the government expenditure, pegged at Rs 50.65 lakh crore, is higher only by around Rs 3.5 lakh crore. The revival of the India Story rests on execution of the intent to create jobs and incomes, and rationalisation of the GST rates for revival of domestic markets. Beyond the grand plans listed across 50-plus pages, the aspiration for growth hinges on the hope of a surge in private consumption.

SHANKKAR AIYAR

Author of The Gated Republic, Aadhaar: A Biometric History of India’s 12 Digit Revolution, and Accidental India

(shankkar.aiyar@gmail.com)

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