It is difficult to pick something to criticise in Finance Minister Nirmala Sitharaman’s eighth Budget. She has managed to tick most of the boxes, and correctly, too. Fiscal deficit on scheduled glide path, maintaining capital expenditure to propel growth, making the long-suffering middle-class happy while simultaneously boosting consumption, and throwing in a few reform measures... A resounding Yes to all.

Video Credit: Businessline

It was a difficult puzzle to crack. But Sitharaman managed to find the secret code by deftly balancing between conflicting demands. The fiscal deficit target of 4.4 per cent of GDP for 2025-26 was sacred. But consumption needed a leg-up and the middle-class was restive. She had to find the money for a tax give-away and she managed that by maintaining the capex spend at about the same level as last year, at ₹11.21-lakh crore. In other words, a higher capex allocation was sacrificed in favour of a tax-break for the middle-class.

This is smart strategy because the government’s capacity to push capital spending seems to have run into a wall, even accounting for the explanation that the general elections were the root cause for the inability to spend in 2024-25. Of course, if you consider the revised estimate of ₹10.18-lakh crore for 2024-25, the capex allocation for 2025-26 is actually a 10 per cent rise.

Strategy shift

This Budget also marks a significant shift in strategy by the government from capex driven growth to a consumption-driven one. Whether this is a tactical change or a shift in philosophy remains to be seen. The Finance Minister has not only raised the tax rebate threshold to ₹12 lakh per annum (excluding capital gains, etc.) but also reordered the slabs and the rates such that the highest tax rate of 30 per cent will kick in only on income above ₹24 lakh against ₹20 lakh before. These changes are projected to put between ₹80,000 (income of ₹12 lakh) and ₹1,10,000 (income of ₹25 lakh) in the hands of tax-payers per annum. As many as one crore tax payers are expected to benefit from the change in rebate limits alone.

The projections for revenue and expenditure are largely believable though it is possible to raise a question mark over the 14.40 per cent increase assumed in personal income tax revenue at ₹14.38-lakh crore.

Of course, the increase is well below the actual growth in 2023-24 and in the immediate past years. But together with the 10.40 per cent growth assumed for corporate tax in 2025-26 (actual growth of 7.56 per cent in 2024-25 over 2023-24), this may well be the weakest link in the Budget arithmetic.

Corporate profit growth is slowing. But, then, there is the ‘X’ factor in dividend receipts from the central bank and PSUs/PSBs, assumed at ₹3.25-lakh crore. There is reason to believe that it may overshoot the estimate considering the RBI’s vigorous market interventions to support the rupee by selling dollars which fetches a handsome premium given the low holding cost.

Sitharaman did not lose sight of reforms as well. The FDI limit in insurance will now be 100 per cent (74 per cent earlier), there is the promise of a new Income Tax Bill to be introduced shortly “that will be clear and direct in text with close to half of the present law”, a second round of asset monetisation that will raise ₹10-lakh crore in 2025-30, rationalisation of TDS/TCS, and the promise of a high-level committee on regulatory reforms.

Bihar bonanza

While focusing on the economy, the fisc and revenues, Sitharaman did not forget about the approaching elections in Bihar. The State has been showered with largesse in the form of various schemes the most interesting of which is the announcement of a Makhana Board to improve production, processing, value addition, and marketing of the super-snack.

A new National Institute of Food Technology, greenfield airports and support for an irrigation project in the Mithilanchal region are some of the goodies for Bihar.

Sitharaman’s latest Budget is one for the times. It attempts to do what is required in the current context of growth slowdown and global uncertainties, with some deft balancing of resources and redirection of priorities.

Published on February 1, 2025