
The 2025-26 budget speech was uncharacteristically short, leaving observers wondering whether the Finance Minister has run out of ideas to cure the economy’s malaise.
It was distressing to note how the Union budget was again turned into an ally-appeasing exercise. Bihar remained in focus as it is slated to go to polls this year. Last year, Andhra Pradesh and Bihar were the focus states as BJP aimed to pacify its allies after losing its majority in the general elections.
Deploying the budget merely as an election tool will have serious repercussions on the economy and the federal character of our country. Common people across India expect the Finance Minister to address their concerns, whether they live in an election-going state or not.
Ideally, the Finance Minister should have consulted all states and made fair allocations. Karnataka faced severe droughts and floods, but the Centre refused to step in. The state was allotted Rs 3,454 crore against a demand of Rs 18,171 crore. PM Awas Yojana is an important Central government scheme that funds construction of houses of the rural and urban poor.
The Union government allocates Rs 1.5 lakh per house when the actual construction cost is close to Rs 10 lakh. Instead of announcing small projects for Bihar, the finance minister should have announced an increase in its allocation for house construction. Such a move would benefit not only a resident in Bihar but also in Karnataka and Uttarakhand alike.
The major announcement of income tax relief was also aimed at Delhi’s voters. The middle class has been demanding tax relief for years. Poor economic prospects and rising prices have stretched household budgets.
Demand has slowed down (private consumption fell to a 20 year low last year) and savings have fallen (household savings fell to a 47-year low). The tax relief will marginally uplift sentiments but fail to significantly enhance people’s spending power. A cut in petroleum taxes would have had broader impacts and actually boosted consumption.
When people are hurting, a government must invest in welfare. A farsighted government would also invest in human capital. Inexplicably, the government has failed at spending the budgeted amounts. The education budget for 2024-25 was revised downwards from Rs 1,25,638 crore to Rs 1,14,054 crore!
Private investment has remained stagnant in spite of the tax break that this government gave corporates in 2019. Something is wrong when industrialists do not have enough faith to invest in India, and thousands of them flee the country. Just like income taxes now contribute more than corporate taxes, corporates got a bigger break as the revenue foregone from their tax concession was 1.45 lakh crore versus from the income tax cut is Rs 1 lakh crore.
The Economic Survey bravely advises the government to ‘get out of the way’ and bridge the trust deficit. Easier said than done. What is clear is that Make in India has failed. It has not met its target of manufacturing generating 25% of GDP as that is stuck around 15%. Nor has it met its target to increase the manufacturing workforce, which has actually declined.
In a reversal of development patterns, more people, nearly half our workforce, work in agriculture. There is little in this budget for them. The promise to double farmer incomes has been consigned to the compost heap. Real agricultural wages and MSP for crops have increased only marginally.
Agricultural growth fell to 1.4 percent in 2023-24 and is estimated to be only 3.8 percent in 2024-25. The MGNREGA and PM KISAN budgets are stagnant. The rising demand for MGNREGA work is the direct result of lack of gainful income opportunities in the rural economy. These most vulnerable workers have been continually let down by the government.
The government’s Economic Survey shows that decadal growth under Modi sarkar is stuck in the 6% range. The Survey also states that India needs to grow for decades at 8 percent to attain Viksit Bharat by 2047. Clearly, the Modi government is marching India into a middle-income trap which will deprive us of our deserved demographic dividend. The cost of this stunted growth rate is that it will deprive our youth of a life better than that enjoyed by their parents.
The new world ahead of us is rife with challenges. Deglobalisation is already underway. Trump threatens tariffs targeting India. Technology threatens to displace workers by artificial intelligence. This was the moment for the budget to show that India is ahead of the curve and to announce programmes to outcompete the rest of the world using our brainpower. Sadly that brainpower was missing in action on budget day.