In a notable shift from the capex-led growth strategy of recent years, Finance Minister Nirmala Sitharaman on Saturday presented a middle class-friendly Budget, unveiling a slew of tax benefits aimed at putting more money in the hands of common taxpayers. The landmark personal income tax cuts and other direct tax measures will result in an estimated revenue foregone of ₹1 lakh crore for the exchequer in 2025-26.

At the same time, the Budget balances growth aspirations with fiscal prudence, targeting a fiscal deficit of 4.4 per cent in 2025-26 while revising the current year’s deficit aim to 4.8 per cent. Nominal GDP growth for 2025-26 has been pegged at 10.1 per cent, slightly lower than the 10.5 per cent estimated for 2024-25 in the July 2024 Budget.

Video Credit: Businessline

Biggest tax reforms in years

Saving the biggest announcement for the last in her 75-minute speech, Sitharaman—who created history by presenting her eighth consecutive Budget—declared that taxable incomes up to ₹12 lakh will now be tax-exempt at the hands of individuals. In another major move, she rationalized personal income tax slabs, with the highest marginal tax rate of 30 per cent now applicable only for incomes above ₹24 lakh, up from the earlier ₹12 lakh threshold.

This significant tax relief is expected to alleviate the “disposable income squeeze” faced by salaried individuals amid rising inflation and muted salary hikes from corporate India.

Capex growth moderates

Contrary to expectations of a significant boost, the Budget proposes only an 8 per cent increase in capital expenditure for 2025-26, with an allocation of ₹11.21 lakh crore—marginally up from ₹11.11 lakh crore in 2024-25. The revised estimate for the current fiscal has been scaled down to ₹10.2 lakh crore, disappointing industry leaders who were expecting a 25 per cent increase. This shows a reversal of focus in capex-led growth in the previous Budgets—in Budget 2023-24, the capex allocation was ₹9.5 lakh crore, an increase of 30 per cent over the previous year. In Budget 2024-25, the capex allocation was ₹11.11 lakh crore, an increase of 17 per cent over the previous year. For the current fiscal, the aim is to allocate ₹11.21 crore, showing a marginal increase of 0.9 per cent increase over the BE of 2024-25. However, it translates to a near 10 per cent growth when compared to the RE of ₹10.2 lakh crore for 2024-25.

Key structural reforms

Beyond tax relief, Sitharaman announced several game-changing reforms:

   •   100% FDI in insurance: The foreign direct investment (FDI) cap in the insurance sector has been raised from 74 per cent to 100 per cent, a move expected to attract global insurers and deepen market penetration.

   •   New National Missions: The Budget introduced several strategic missions focused on manufacturing, cotton productivity, nuclear energy, power, edible oil and pulses, geospatial mapping, and export promotion.

   •   Bihar-centric measures: With the upcoming Bihar assembly elections in view, the Budget included several targeted proposals for the State—National Institute of Food Technology, Entrepreneurship and Management in Bihar, greenfield airports in addition to expansion of Patna airport, West Kosi Canal Project in Mithilanchal, development of road connectivity projects, power projects, including setting up of a new 2400 MW power plant at Pirpainti, medical colleges and sports infrastructure et al. This is in addition several Bihar schemes unveiled as part of a larger Purvodaya plan that covers all-round development of eastern states.

Major investment and growth initiatives

   •   National Monetisation Plan 2.0: The government will launch the second phase of its asset monetization drive.

   •   ₹1 lakh crore Urban Challenge Fund: A new initiative to spur urban infrastructure development.

   •   Fund of Funds for Startups: The government will inject ₹10,000 crore to support startup funding through a second Fund of Funds initiative. 

   •   SWAMIH-II Fund: A ₹15,000 crore Alternative Investment Fund allocation to restart stalled housing projects.

   •   Deep-tech and clean-tech focus: The Budget outlines multiple initiatives to strengthen India’s position in emerging technology and sustainable energy sectors.

New income tax law on the horizon

In a significant policy shift, Sitharaman announced that she would introduce a Bill next week to replace the existing income tax law with a clearer, simpler version, making tax compliance more transparent and user-friendly.

Disinvestment target raised 

The government has set an ambitious disinvestment target of ₹47,000 crore for 2025-26, up from the revised estimate of ₹33,000 crore for the current fiscal. However, it remains lower than the ₹50,000 crore projected in the original 2024-25 Budget.

With its mix of bold tax relief, strategic reforms, and fiscal consolidation, Sitharaman’s Budget aims to energize consumption, attract investments, and lay a foundation for sustained economic growth, said economy watchers. 

Published on February 1, 2025