Union Budget 2025-26: Key Highlights and Analysis

The Union Budget for 2025-26 arrives amidst an acknowledged economic slowdown, with stagnant or declining incomes leading the downturn. The Economic Survey presented prior to the budget highlighted the challenges, particularly the decline in incomes for the self-employed and stagnancy in real wages for wage workers over the last decade.

Economic Reality vs. Political Pragmatism

• The budget lacks new measures to rejuvenate the economy, focusing instead on political needs with upcoming elections in Delhi and Bihar, and satisfying the middle-class voter base.
• Despite the economic slowdown, there is no significant increase in public expenditure to stimulate aggregate demand.

Budgetary Allocations and Economic Indicators

• The nominal GDP growth is projected at 10.1% with inflation in the 4-5% range.
• Budgeted expenditure growth is at 7.3%, lower than the nominal GDP growth; excluding interest payments, the growth in government spending is 5.9%, mirroring last year's figure.
• Centre’s gross and net tax revenue is projected to grow by 10.9% in nominal terms, despite a Rs 1 lakh crore tax concession to the middle class, making this a conservative budget rather than an expansionary one.

Fiscal Deficit and Expenditure Cuts

• The fiscal deficit is reduced to 4.4% through real-term expenditure cuts in critical programmes and ministries.
• Revised expenditure for important ministries is lower than budgeted last year, continuing a trend of larger budget allocations followed by lower actual spending.

Sectoral Impacts

• Rural Development: Revised estimates are Rs 3,654 crore lower than budgeted, despite prolonged rural distress and unemployment issues.
• Labour and Employment: Revised estimates are Rs 4,224 crore lower, reflecting inadequate support for employment generation.
• MGNREGA: Budgeted at Rs 86,000 crore, same as last year, despite rising inflation and wages under the scheme; this is actually lower than the Rs 89,368 crore spent in 2023-24.
• Agriculture: Budgeted expenditure is Rs 1,27,290 crore, lower than last year’s revised estimate of Rs 1,31,195 crore, highlighting stagnant or declining agricultural incomes.

Middle Class Tax Reforms

• The government has adjusted tax rates to reduce the burden on the middle class and introduced exemptions for incomes up to Rs 12.75 lakh.
• This move aims to increase disposable income among the middle class but its impact on overall demand revival remains uncertain.

The budget's focus on the middle class, despite more severe rural and informal sector distress, is seen as a political strategy similar to prior corporate tax subsidies that did not yield increased investments or job creation. The outcome of this strategy's effectiveness will unfold over time, while the political economy priorities of the government become evident through continued expenditure cuts and fiscal conservatism.