A dash-for-growth budget with the power to change us all at the deepest level

Wrapped up in the aura of a winner, the income tax cuts are big on mood and should help revive aggregate demand
Union Finance Minister Nirmala Sitharaman with Union Minister of State for Finance Pankaj Chaudhary and other officials outside the Finance Ministry ahead of the presentation of 'Union Budget 2025-26', in New Delhi, Saturday, Feb. 1, 2025.
Union Finance Minister Nirmala Sitharaman with Union Minister of State for Finance Pankaj Chaudhary and other officials outside the Finance Ministry ahead of the presentation of 'Union Budget 2025-26', in New Delhi, Saturday, Feb. 1, 2025.Photo | PTI
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Budget 2026 summoned the support of the cosmos to offer good luck and prosperity to the bulging middle-class.

Amid feelings of fiscal fears, Finance Minister Nirmala Sitharaman launched a Rs 50.65 lakh crore dash-for-growth budget, which has an epiphany -- that economics is all about people and providing a better life for individuals. This guiding principle is the very breath of life, but had so far remained elusive like a monk's magical energy that aligns body and mind into harmony.

On Saturday, though, Sitharaman spoke with her cheque book, and perhaps drawing inspiration from Goddess Lakshmi to be benevolent and generous, she proposed some of the most-thrilling tax measures ever.

All those earning Rs 1 lakh per month, or up to Rs 12.75 lakh per annum (excluding capital gains), are now exempt from paying income taxes under the new regime. This is a heart-grabber, as individual taxpayers have been breathlessly waiting forever and Sitharaman, in her own I-did-it-my-way charisma handed over the long-awaited tax goodies, complete with a box of chocolates. Further sweetening the deal, she announced the introduction of a new Income Tax Bill, which will be simple to understand, lead to tax certainty and above all reduce litigation.

Broadly, Budget 2026's primary goal is to revive growth, ease the tax burden on individuals, boost consumption, encourage investments, create jobs and improve wages. So, Sitharaman presented a whiz-bang budget to goose the world's fifth largest economy while covering key bases including poor, youth, farmers and women. Some other notable announcements include social security for 1 crore gig workers complete with healthcare, increasing FDI in insurance from 75% to 100%, and sector-specific reforms covering power, mining and finance.

In all, Budget 2026's total expenditure stood at Rs 50.65 lakh crore, a 7.4% increase over FY25's revised estimate of Rs 47 lakh crore. Total receipts were pegged at Rs 34.96 lakh crore, of which net tax proceeds are estimated at Rs 28.37 lakh crore. Gross market borrowings are projected at Rs 14.82 lakh crore, while total capital expenditure is set at Rs 11.21 lakh crore. As for fiscal consolidation, the government's commitment is unwavering like the flame of a candle in a windless place. The revised fiscal deficit for FY25 is pegged at 4.8%, while for FY26 it's set at 4.4% of GDP.

Darkness and despair are staring at the Indian economy, that's slowing down as consumers, investors and government are spending too little, even as aggregate demand, investments, and public expenditure are all tangled like Christmas tree lights. Both the middle-class, hit by rising living costs, and MSMEs, struck by regulations and lack of credit, have been martyrs to unrequited love from the government. That changed with Sitharaman swinging for the fences offering mega tax breaks on Saturday, while MSMEs were served a decent platter of goodies including access to credit and much-needed regulatory changes.

Unarguably, this budget's season opener is the personal income tax cuts. Wrapped up in the aura of a winner, they are big on mood and should help revive aggregate demand. In fact, anticipation peaked on Friday, thanks to Prime Minister's Narendra Modi's remarks about Budget 2026 giving new faith and trust. The individual taxpayers' wait for tax cuts started from 2019, when Sitharaman slashed the corporate income tax rate from 30% to 22%. The move was supposed to create jobs and improve wages, but it didn't. Instead, as the Economic Survey noted, corporate profits jumped 22.3% in FY24, while employment grew by a dismal 1.5%, even as wage growth jerked to a halt.

Perhaps with sincere regret, Sitharaman turned the focus back on individuals invoking Telugu poet Gurajada Apparao's: A country is not just its soil, a country is its people. The proposed tax cuts may or may not have been based on the premise that abundance flows to you and through you, but the enlightment, though belated, and the attempt to leave more money with taxpayers should lift us out of the plodding pace of growth.

Currently, under the old tax regime, the basic income exemption limit is set at Rs 2.5 lakh, while it stands at Rs 3 lakh under the new regime. Sitharaman revised income tax slabs and rates across the board to improve consumptions, savings and investment. Amid table-thumping and Modi-chants for over a minute she announced the revised tax slabs and rates that include: Rs 0-4 lakh paying nil taxes, followed by Rs 4-8 lakh income earners taxed at 5%, Rs 8-12 lakh paying 10%, Rs 12-16 lakh at 15%, Rs 16-20 lakh at 20%, Rs 20-24 lakh taxed at 25% and lastly, those earning above Rs 24 lakh have to fork out 30% tax, which is the marginal tax rate.

Another roaring hands-in-the-air crowd-pleaser is the revision of TDS and TCS rates and thresholds. While the limit for tax deduction on interest for senior citizens was doubled from Rs 50,000 to Rs 1 lakh, the annual limit for TDS on rent was increased from Rs 2.4 lakh to Rs 6 lakh. Likewise, the threshold to collect tax at source on remittances under RBI's liberalised remittance scheme has been be raised from Rs 7 lakh to Rs 10 lakh. Interestingly, Sitharaman also announced tax exemption on withdrawals made from National Savings Scheme by individuals on or after August 29, 2024.

In all, the revenue foregone in lieu of direct tax cuts stands at a significant Rs 1 lakh crore, but Sitharaman isn't intimidated. As for indirect taxes, Sitharaman rationalised customs tariff structure for industrial goods, removing seven tariff rates over and above the seven rates removed in FY24. With this, there are only eight remaining rates including zero. While at it, she eliminated basic customs duty on 36 life saving drugs and separately also announced the setting up of 200 day-care cancer centres in every district in next three years.

Curiously, despite Sitharaman cuing some happy-pills theme music with tax cuts and a market-friendly borrowing programme, markets refused to uncork the champagne or wear some party hats. Both Sensex and Nifty were open on Saturday for a special trading session, but for traders, it didn't make a dime's worth of difference.

Meanwhile, MSMEs too found themselves with a little bit of bloomin' luck. Acknowledging their role in nation building, Sitharaman raised both investment and turnover limits by 2.5 times each. Besides, she also enhanced their credit guarantee from Rs 5 crore to Rs 10 crore, alongside additional credit of Rs 1.5 lakh crore in next five years. Some other measures include loans to startups in 27 focus sectors at 1% guarantee fee, term loans up to Rs 20 core for export MSMEs, customized credit cards with Rs 5 lakh limit registered MSMEs, fund of fund for startups, another Rs 10,000 crore to be setup. For startups, the period of incorporation to be extended by 5 years to allow tax benefits to startups incorporated before April, 2030.

Importantly, the election-bound Bihar rated a specific mention amid opposition uproar, with Sitharaman announcing several measures including expansion of IIT Patna, setting up of a new greenfield airport, a National Institute of Food Technology, a centre of excellence for Artificial Intelligence with an outlay of Rs 500 crore and others.

Coming to agriculture, the announcements were epic in length and spectacle, but not in feeling. There was nothing special other than the short-term loan limits which were enhanced from Rs 3 lakh to Rs 5 lakh, followed by some key schemes including setting up of 100 agri districts to increase productivity and improve irrigation to help about 1.7 crore farmers.

Some other major measures include the opening of an extra 0.5% fiscal space for states undertaking power-sector reforms, followed by energy-sector reforms including amendments to the Atomic Energy Act and the Civil Liability for Nuclear Damage Act to develop at least 100 GW of nuclear energy by 2047. Then there was the expansion of medical education, increasing capacity at IITs to add 6,500 students, about 10,000 fellowships for technological research in IITs and IISC, urban-sector reforms fund of Rs 1 lakh crore, increasing shipbuilding clusters and adding 125 new destinations under the Udaan programme to carry 4 crore additional air passengers in the next 10 years.

Both the Economic Survey and the latest RBI bulletin noted that the global economy was shaping up to be anything but ordinary in 2025 and so the domestic economy would remain sluggish in FY26. Complicating things, private capex is yet to pick up pace, and amid moderating government capex, the overall investment rate appears weak. Markets are wallowing in gloom, thanks to relentless selling by foreign portfolio investors, bank credit remains a drag and forex reserves are depleting as the RBI desperately tries to shore up the rupee that's plumbing new depths.

In other words, Sitharaman's record eighth budget, set against a backdrop of geopolitical tensions, tariff threats and a slowing domestic economy, needed to go beyond the ordinary arithmetic. While first impressions can often go wrong, on the face of it, Budget 2026 is good on deficit, but toe-curlingly timid on reforms.

Yet, it had a happy beginning, a happy ending and few happy things even in the middle and packs the power to change us all at the deepest level.

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