The Hindu Editorial ( February 2 , 2025 ) :
Hope in the time of depression : On the Union Budget 2025
The Union Budget is built on expectations that people will spend more and drive growth.
The Union Budget 2025-26 seeks to address specific issues plaguing the Indian Economy – flagging domestic demand , sluggish private investment and tepid wage growth leading to a slowdown in meaningful GDP growth. A closer look at the approach is cautions , without the assurance that they would indeed address the underlying problems . The government has seized upon a double – edged sword – substantial tax breaks – to boost consumptions and to drive
growth , leaving it with little room to expand public spending on capital expenditure , which could have been another useful lever to achieve the same end . while putting more money in the hands of the middle class seems the right thing to do in a time of unrelenting inflation , the focus continues to be on fiscal consolidation with a targeted fiscal deficit of 4.4% of GDP in FY26 , coming down from 4.8% in FY25 . It has sought to project augmented direct tax receipts despite providing tax rebate incentives for a large segement of the salaried direct tax payers .
The expectation is that there would be better compliances with a greater use of technologies which was useful in increasing the direct tax revenue from a budgeted estimate of 11.87,000 crore to 12.57.000 crore in FY25 .
The highlights of the Budget remains the move to ensure that taxpayers earning up tp 12 lakh have no tax liability due to the rebate provided . This is meant to boost demand among the salaried middle and lower middle – class sections , who get substantial benefits in the form of tax saving and could be expected to spur consumptions . The Economic Survey has pointed to mixed trends in urban demand unlike sustained consumption growth in rural areas through this year , and this move clearly targets the problem . Also there has been a clamour for relief from among direct tax paying middle class sections ,who have had to cope with both rising inflation and indirect goods and service tax payments that squeezed their incomes :the budget address the issue in a good measure with tax incentives . In a way , this is also a response to resentment among the government’s own sympathisers ,and can be read as a way to mitigate any issue of political support .
While the salaried middle – class sections would indeed benefit and welcome the move , it is not clear if this measure alone will stimulate demand to extent of creating a strong virtous ecnomic growth cycle . This is because private investment in the economy has been stagnant , with the corporate sector showing little inclination to step it up . The Budget continues the trend of incentivising the corporate tax as a share of gross tax collections are estimated to fall slightly from 25.4% IN FY 25 to 25.3% in FY26.But considering that corporate tax rates and increased profitability . the government should have adopted an alternative approch , perhaps gradually phasing out the tax incentives .
The Budget continues the trend of a high allocation on capex – albelt with a reduced share compared to the previous Budgets since the COVID- 19 pandemic . Allocation to road transport and telecom fell from 5.95 to 2.64% in RE for FY25 to 5.67 % and 1.6% in BE26 .
Budgetary support for the Railways has also remained stagnant compared to FY 25. This is curious considering that the Railways has sufferd a series of accidents in recent years and require a strong infrastructural boost , However the government has done well to emphasise support for MSMEs with enhance credit and startups besides schemes for the footwear and leather industry , toy sector and food processing MSMEs . the attention devoted to expanding clean energy generation is evident in the incentives provided to electric vehicle and battery technology sectors in the form of duty exemptions on capital goods among others , in terms of allocation , expenditure increase by 0.24 points from 1. 36 % in FY25 to 1.60 % in FY26 in the energy sector . This is indeed welcome , considering the strategic importance of this sector as the country transit to a climate friendly economy . while allocation for the rural development increased from 4.08% in FY25 to 5. 24% in FY26 those for the major scheme such as MGNREGS . allocation has been increased in other scheme also such as the PM Awas Yojana and the National Rural Livelihoods Mission . The MGNREGS is tested as a scheme that enhance rural income and allows the rural poor to spend more on consumer goods , and any effort to stifle it would be counterproductive to the goal of stimulating demand .With employment remaining a major issue in the economy , the Budget’s emphasis on social security for gig workers by arranging identiy cards for them and registraion in the e- Sharam portal , besides health card under the PM JAN AROGYA YoJNA , is welcome . While the Budget speech focused on skilling initiatives that would aid in youth gaining employment is an industrial world that is increasingly relying upon automation , the Employment linked incentives scheme , ambitiously launched last year , curiosly did not find any mention in the Budget .
While the Budget has come up with measures that address the need of the economy , there is too much left to hope built on imponderables , and too little riding on pragmatism .
