The Indian Finance Minister presented the Union Budget 2025-26 on Saturday, February 1st, marking a notable departure from the government’s previous infrastructure-focused approach towards a consumption-driven economic strategy. However, both critics and opposition leaders argue that the new direction may not adequately address fundamental economic challenges.
Former Union Finance Minister P Chidambaram launched a sharp critique of the budget, suggesting that many of the new schemes announced are “beyond capacity of this government.” The veteran Congress leader characterised the budget as an attempt to woo the tax-paying middle class and Bihar electorate, predicting that economic growth would remain modest at “no more than usual 6% or 6.5% in 2025-26.”
The budget’s cornerstone announcement involves significant income tax relief, with no tax payable on annual incomes up to ₹12 lakh under the new regime. Finance Minister Nirmala Sitharaman argues this will “substantially reduce the taxes of the middle class and leave more money in their hands.” However, the Centre for Financial Accountability (CFA) points out that this would benefit merely 2% of India’s population, as only a small fraction of Indians fall within the income tax bracket.
The Economic Survey, released alongside the budget, acknowledges several structural challenges facing the Indian economy. These include declining credit growth, with the loan-to-deposit ratio at 80%, slowing foreign direct investment, and weakening export competitiveness. The survey also notes that household income growth has remained stagnant, particularly affecting rural wages.
In terms of social security measures, the budget maintains the status quo on several fronts. The National Social Assistance Programme’s allocation remains at ₹9,652 crore, while its share in the total budget has marginally decreased from 0.20% to 0.19%. Similarly, the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) allocation remains unchanged at ₹86,000 crore, despite expenditures approaching ₹1 lakh crore as of February 2025.
The banking sector presents a mixed picture, with the Gross Non-Performing Assets ratio reaching a 12-year low of 2.6%. However, this improvement comes after banks wrote off ₹16.5 lakh crore in bad loans over the past decade, with ₹1.69 lakh crore written off in 2024 alone.
Industry leaders have generally welcomed the consumer-focused approach. Kamal Bali, President & CEO of Volvo Group in India, estimates that “25-30 million personal taxpayers will save around 100,000 rupees annually,” potentially boosting discretionary spending including vehicle purchases. ITC Chairman and Confederation of Indian Industries President Sanjiv Puri endorsed the middle-class relief, noting that “consumption is about 60% of the economy, so providing a boost to that was much required at this time.”
However, some analysts express concerns about the shift away from capital expenditure. Gaurav Dua, Senior Vice President at Mirae Asset Sharekhan, points out that the government is falling short of meeting its central government allocation of 11 trillion rupees in FY2024-2025, with reduced allocation in sectors including defence.
Moody’s Senior Vice President Christian de Guzman noted that while the government remains on track to meet near-term policy goals, the announced tax relief measures could constrain revenue growth, potentially affecting India’s fiscal strength compared to investment-grade peers.
The railway sector maintains similar allocation levels to the previous year, despite concerns about safety following 313 passenger fatalities in 40 train accidents during 2023-24. The real estate sector received mixed reviews, with Anarock Group Chairman Anuj Puri noting both direct and indirect benefits but highlighting “a notable shortfall” in announcements for the affordable housing sector.
DBS Bank Senior Economist Radhika Rao observes that the budget carries both short and medium-term focus, with fiscal discipline remaining a priority. The government has outlined a forward-looking glide path to align deficit targets with debt levels, while maintaining a bias towards supporting growth.
HDFC Bank Principal Economist Sakshi Gupta projects 6.6% GDP growth in 2025-26, suggesting the tax rationalization could spur consumer demand and savings for the middle class, which has faced challenges from elevated inflation and lower income growth.
As India positions itself for what the government terms “Viksit Bharat 2047” (Developed India 2047), the budget reflects a recalibration of economic priorities. However, questions persist about whether these adjustments will effectively address the fundamental challenges facing the world’s most populous nation, particularly in terms of inclusive growth and economic resilience.
