"The Finance Minister caught many by surprise with a significant income tax relief, raising the tax rebate threshold to Rs 12 lakh, up from the previous Rs 7 lakh. (PTI Photo)"
Shimla, February 01: Budget 2025 Highlights: On Saturday, Finance Minister Nirmala Sitharaman unveiled the second Budget of the third term of the BJP government under Prime Minister Narendra Modi. The budget presented a mix of tax relief, fiscal discipline, and infrastructure priorities aimed at boosting economic growth while addressing key social and developmental challenges. With a focus on empowering taxpayers and creating more job opportunities, the budget aimed to further strengthen the nation’s economic recovery and long-term sustainability.
In the lead-up to the Budget, it became increasingly apparent that India’s economic growth was losing steam. The country’s GDP has averaged less than 5% annually since 2019, and its growth has been under 6% since 2014. This slowdown in economic activity has raised concerns about sustaining long-term growth, prompting the government to focus on measures that would stimulate demand, attract investments, and create jobs to reignite the economy’s momentum.
Top 5 Highlights from the Union Budget for 2025-26: Key Takeaways
Massive Income Tax Cuts: More Money in the Hands of Taxpayers
Discontent has been brewing among the middle class over the perceived heavy tax burden. As a result, many anticipated that the Budget would offer some form of tax relief to provide financial respite to this demographic.
In a move that took everyone by surprise, the Finance Minister announced significant income tax relief by increasing the tax rebate threshold to an annual income of Rs 12 lakh, up from the previous limit of Rs 7 lakh. This bold step is expected to bring immediate relief to a large section of taxpayers, especially in the middle-income group.
In addition to raising the tax rebate limit, the Finance Minister also revised the tax slabs, ensuring that the highest tax rate of 30% will only apply to individuals earning an annual income of Rs 24 lakh or more (approximately Rs 2 lakh per month). This adjustment aims to ease the tax burden on the middle and upper-middle-class taxpayers, providing greater financial relief.
This tax relief primarily benefits income taxpayers, putting more disposable income in their hands. The government is banking on the idea that people will use this extra money to increase spending, which will, in turn, stimulate economic growth. The hope is that this consumer-driven boost will encourage companies to invest in expanding their operations, leading to the creation of new jobs and increased incomes across various sectors.
Fiscal Discipline Upheld, Deficit to Shrink Despite Tax Relief
When governments increase spending or provide tax cuts, there is often concern that it may lead to higher borrowing to cover the shortfall. This could raise the fiscal deficit and burden future generations with debt.
When governments increase borrowing, they often crowd out private sector borrowing, leading to higher interest rates for businesses and individuals. Alternatively, they may resort to printing more money, which can trigger inflation. Inflation, in turn, acts like a hidden tax, eroding the purchasing power of people’s hard-earned money.
Despite the significant tax cuts that will result in a loss of about Rs 1 lakh crore in revenue, the Finance Minister assured that the government’s fiscal deficit would still decrease to 4.4% of GDP in 2025-26. This demonstrates the government’s commitment to fiscal discipline while implementing measures to stimulate economic growth.
Capital Expenditure Growth Stalls, Signaling Shift Away from Recent Budgets
Capital Expenditure Growth Stalls: One of the standout features of the budgets from the second term of the Narendra Modi government (2019-24) was the emphasis on ramping up capital expenditure. The government had made large investments in infrastructure projects, including roads, railways, and urban development, as a way to boost economic growth and create jobs. However, in the 2025 Budget, the momentum of this capital expenditure push seems to have slowed, with the growth rate showing signs of stagnation, signaling a shift in the government’s fiscal priorities for the upcoming financial year. This may reflect a recalibration of the government’s approach towards managing its finances, balancing the need for investments with a focus on fiscal discipline.
Capital expenditure refers to the funds allocated by the government for the creation of long-term assets that contribute to economic growth. These expenditures are aimed at building and maintaining critical infrastructure like roads, ports, bridges, and other public facilities. The idea behind capital expenditure is to invest in projects that not only address current needs but also foster productivity and growth in the future, providing returns in the form of better connectivity, increased efficiency, and job creation. It’s a key driver in enhancing the economy’s overall capacity for growth.
The government has faced challenges in meeting its capital expenditure targets, falling short by nearly Rs 1 lakh crore in the current financial year. For the upcoming year, the budgeted capital expenditure has seen a significant slowdown, with the allocation being just under Rs 10,000 crore more than the current year’s revised target. This marks a noticeable shift from the aggressive capital spending approach seen in previous budgets, where large investments were aimed at boosting infrastructure and stimulating growth. The reduction in capital expenditure is being seen as a signal of a change in fiscal priorities moving forward.
Despite the slowdown in capital expenditure growth, the allocated amount for the upcoming financial year remains significant by historical standards. While the increase is smaller than expected, the overall figure still reflects a strong commitment to infrastructure development. This continued focus on capex, although at a slower pace, highlights the government’s ongoing emphasis on long-term growth through the creation of vital public assets, even as it seeks to balance fiscal discipline and spending priorities.
Focus on Employment Generation, Visible in Attempt to Boost Specific Sectors
Another significant shift in this year’s budget is the renewed focus on employment generation. Recognizing the importance of job creation in sustaining economic growth, the government has allocated funds to bolster key sectors that are expected to drive employment. This includes boosting industries such as manufacturing, infrastructure, and agriculture, where labor-intensive projects can create vast opportunities for the workforce. Additionally, the focus on technology and digital sectors aims to equip a new generation of workers with the skills needed for the future economy. The intent is to stimulate growth across industries while addressing the pressing need for sustainable employment in the country.
For some time, the government has faced criticism for not prioritizing employment generation in its policy measures. Critics argue that programs like the Production Linked Incentive (PLI) scheme, while boosting manufacturing, were more focused on capital-intensive ventures rather than creating jobs. The scheme provided subsidies to companies but did not adequately address the need for employment, as it favored automation and capital-heavy industries. This shift in focus toward sectors that create more jobs signals a response to those concerns, aiming to balance economic growth with the creation of sustainable livelihoods for the workforce.