The Economic Survey 2025 has cautioned about the growing risks to sustaining high GDP growth rates, despite projecting a possible target of 6.3–6.8% for the coming year. It noted that the economy has regained its pre-pandemic growth trajectory, with an average growth rate of 6.5% since FY2022.
This optimism, however, stands against multiple concerns, including declining sales in FMCG, low-end cars and smaller residential flats, which indicate a fall in private consumption. Additionally, the rise in employment is largely due to an increase in lacklustre self-employment rather than genuine job creation.
Exports have declined, causing the rupee to fall to record lows, while rising real inflation, especially in education costs, has burdened the middle class. Moreover, income tax collections have now exceeded corporate tax collections in direct taxes.
Despite these concerns, the Economic Survey 2025 highlights the brighter aspects of the economy while recommending key government interventions amid geopolitical headwinds. Notably, it stresses the need to boost manufacturing exports, upgrade the quality of educational institutions and encourage firms to invest in research and development (R&D) to maintain a foothold in the Chinese-dominated global trade landscape.
One of the biggest expectations raised in the media, and hinted at by the prime minister recently, was a possible reduction in income tax. Many have described the current tax regime as ‘tax terrorism’ — a perception fueled by high mortgages, multiple cesses and surcharges, inadequate public utilities, rising education costs, tax concessions to businesses and corporations and freebies extended by the government. With job creation stagnating and basic services becoming more expensive, taxpayers have grown increasingly restless.
While tax cuts are popular, they can weaken the fiscal capacity of states to fund developmental policies. Nonetheless, the BJP-led Union government has positioned income tax relief as a key strategy to stimulate the struggling economy.
Over the past decade, the government has implemented various supply-side measures, including corporate tax reductions, demonetisation, GST reforms, FDI liberalisation and fiscal consolidation. On the demand side, it has pushed capital expenditure (capex) infusion. However, a structural slowdown continues to affect the economy — luxury consumption, including high-end villas and cars, is thriving, while essential FMCG sales are shrinking. The informal sector has yet to recover from the combined shocks of Covid-19 and GST.
Recognising this reality, the government has adopted a populist approach by offering tax relief to the lower middle class. The exemption limit has been raised from Rs 7 lakh to Rs 12 lakh, while the tax brackets have increased from three to six, providing marginal relief of around 5%.
This “desperate” measure is expected to put Rs 50,000 to Rs 1.5 lakh back into the hands of people, boosting consumption and household investment. However, this move comes at a cost — the government will forego revenue of up to Rs 1 lakh crore, which is a pittance compared to the tax reductions of Rs 11 lakh crore for the corporate sector. This may explain the lukewarm reaction of the stock markets.
Beyond tax cuts, the Budget follows the tradition of making broad promises while implementing only a few minor measures. However, the Union finance minister outlined five key policy priorities: agriculture, MSMEs with export promotion, inclusive growth, green energy and infrastructure.
While these areas received attention in the speech, the Budget lacks significant measures to drive substantial change. Some notable initiatives include plans to expand nuclear energy capacity alongside renewables, improve internet access in government schools, increase credit limits for MSMEs, reduce tariffs on machinery parts and intermediate goods, ease GST compliance, decriminalise delays in I-T filing, increase the limit for international money transfers without TCS and extend the operations of India Post Payments Bank to agricultural credit.
The Budget has a short focus but lacks a long-term vision for sustained growth, as highlighted by the Economic Survey 2025. Critical areas such as the education system, investment in R&D, farm income stabilisation and job creation have been largely overlooked. While the government has focused on supply-side measures like corporate tax cuts and fiscal consolidation, the erosion of states’ fiscal capacity has derailed a path toward sustainable and equitable development.