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Economy

Union Budget 2025: Cosmetic Changes Amidst Structural Economic Crisis

The 2025-26 budget reflects a government more focused on political manoeuvring and corporate appeasement than on delivering meaningful economic reforms.

Union Budget 2025: Cosmetic Changes Amidst Structural Economic Crisis

Union Finance Minister Nirmala Sitharaman. Image: X/@Adarsh_Jha_07

The Union Budget 2025-26 by the Modi government, like past budgets, once again neglects the needs of the Indian people, prioritizing the interests of the wealthy while overlooking pressing economic concerns such as unemployment, stagnant wages, and widening inequality. Instead of addressing the fundamental issues plaguing the economy, the government has chosen to favour the elite, deepening socio-economic disparities and weakening the purchasing power of the majority.

The Economic Survey itself has painted a grim picture of India's workforce, highlighting declining earnings over the past five years. Yet, the government has turned a blind eye to the realities, continuing policies that benefit corporate interests at the expense of workers, farmers, and small businesses.

Rather than implementing measures to stimulate demand by increasing public investment and ensuring higher wages, the budget focuses on tax concessions for the affluent while slashing essential welfare expenditures.

The budget, being the first full-year financial plan of the government’s third term, was expected to present a clear strategy for economic revitalization. However, it fails to do so. Private investment and consumption—both of which have been weakening since the disastrous demonetization of 2016—receive no meaningful boost. 

Fiscal Expenditure

Fiscal expenditure as a percentage of GDP continues to shrink, dropping from 14.6% in 2024-25 to 14.2% in 2025-26. The government’s spending last year fell short of budgetary promises by nearly Rs 1 lakh crore, raising serious doubts about its commitment to fulfilling even these inadequate allocations.

With public debt hovering around 80% of GDP and interest payments consuming nearly a quarter of government revenue, the finance minister has chosen a fiscally conservative path, aiming to bring the fiscal deficit below 4.5% by 2026-27. While fiscal discipline is important, this approach comes at the cost of much-needed public investment, failing to create employment opportunities or stimulate economic growth. Instead of taking bold, short-term measures to address pressing concerns, the budget fixates on long-term targets while neglecting immediate necessities.

Agriculture

Agriculture, the backbone of India’s economy, has received only a superficial push. The newly introduced Prime Minister Dhan-Dhaanya Krishi Yojana, targeting 100 underperforming districts, lacks any significant measures to ensure fair pricing and guaranteed procurement for farmers.

The government has failed to address demands for higher Minimum Support Prices (MSP) and enhanced procurement mechanisms, leaving millions of farmers vulnerable to market volatility and financial distress.

For farmers, the budget offers little beyond long-term productivity enhancement schemes. There are no concrete measures to provide financial relief or secure stable incomes through better procurement systems. While rural prosperity initiatives have been announced, they fail to tackle the structural challenges facing agriculture.

New Income Tax Slabs

The much-touted tax relief for the middle class, with an exemption limit raised to Rs 12 lakh, is misleading. While this move has been positioned as a benefit to the salaried class, the real beneficiaries are the top 1% of earners who will gain the lion’s share of the Rs 1 lakh crore revenue loss due to these concessions.

Despite media hype, the so-called "middle-class budget" is inconsequential in economic terms. The Rs 12 lakh exemption limit is actually a rebate, meaning all taxpayers must still file returns. Those exceeding this threshold by even a single rupee will face full taxation on lower slabs. Moreover, for individuals earning above Rs 30 lakh annually, the effective tax rate remains nearly 39%, making the relief insignificant for most middle-income earners.

More importantly, the government has opted against increasing tax rates for higher income groups, missing an opportunity to balance revenue generation while easing the tax burden on the lower middle class.

The impact on overall economic demand will be minimal, as any increase in disposable income for the limited number of beneficiaries will likely be offset by rising inflation and the burdens of indirect taxation.

Social Welfare Schemes

A crucial aspect of any budget is its commitment to social welfare, yet this budget offers little to uplift marginalized communities. The government's selective focus on Bihar underscores its tendency to use financial planning as a political tool rather than addressing national concerns holistically. 

The touted decline in urban unemployment to 6.4% from 6.6% in the last quarter is insignificant, and more troubling is the nature of jobs being created—predominantly low-wage, informal sector work with little security or growth prospects. The economy requires nearly 78.5 lakh new non-farm jobs annually, yet the budget provides no roadmap for achieving this.

Social sector spending, on the whole, remains grossly inadequate. Budgetary allocations may appear to have increased nominally, but they fail to keep pace with inflation and population growth.

The stagnation of MNREGA allocations at Rs 86,000 crore, despite rising demand, effectively undermines the legal right to guaranteed rural employment. Allocations for Scheduled Castes and Scheduled Tribes have been slashed by Rs 27,000 crore and Rs 17,000 crore, respectively, revealing the government’s disregard for social justice.

Funding for welfare programs in the North East and child development initiatives has also been reduced.

The government’s fiscal priorities are further reflected in its capital expenditure trends. Last year, capital spending fell short by nearly Rs 93,000 crore, and similar underutilization is likely this year. Key sectors such as food subsidies, education, rural development, and other social welfare have seen either stagnation or outright reductions in budgetary support.

In education, for instance, the nominal allocation increase of 2.3% means that, after adjusting for inflation, there is effectively no real increase in funding.

The healthcare sector, too, sees only marginal improvements. While expansions in medical education and cancer treatment are positive, overall public health funding remains critically low. With rising healthcare costs, the budget does little to alleviate the financial burden on ordinary citizens.

At a macroeconomic level, total net receipts for the center are projected at Rs 28.37 lakh crore, while total expenditure stands at Rs 50.65 lakh crore, reinforcing the government’s fiscal constraints. The government takes pride in maintaining the fiscal deficit at 4.4% of GDP, but this has come at the cost of essential public investments. When nearly a quarter of total revenue is consumed by interest payments, little remains for meaningful welfare initiatives.

Expenditure on MSMEs

Micro, Small, and Medium Enterprises (MSMEs), which employ over 23 crore workers, remain in distress due to delayed payments and credit shortages. The government has increased the credit guarantee cover from Rs 5 crore to Rs 10 crore and introduced customized credit cards for micro-enterprises, but these measures will only be effective if properly implemented.

Similarly, the extension of the PM Garib Kalyan Anna Yojana for another five years ensures food security for over 80 crore people but does little to create sustainable employment opportunities.

Women

Women’s economic participation remains hindered by systemic barriers. While a Rs 2 crore term loan scheme for five lakh first-time women entrepreneurs is a step forward, it does little to address larger issues of workplace inclusion, gender parity, and financial independence.

The expansion of Saksham Anganwadi and Poshan 2.0 to cover eight crore children, one crore pregnant mothers, and 20 lakh adolescent girls is commendable, but its impact will be limited if broader issues of women’s labour force participation and safety are not addressed.

Another significant and controversial move in this budget is the decision to allow 100% Foreign Direct Investment (FDI) in the insurance sector, along with accelerated privatization in the power sector. This shift prioritizes private accumulation over public welfare, further limiting access to essential services for ordinary citizens.

The government has also adjusted customs duties and import restrictions, particularly on synthetic flavours, solar panels, and select vehicles—moves that appear to be influenced by external diplomatic considerations rather than domestic economic needs. These tariff cuts, coinciding with the Prime Minister’s upcoming state visits, suggest an attempt to appease global partners rather than a genuine trade policy shift.

In summary, the 2025-26 budget reflects a government more focused on political manoeuvring and corporate appeasement than on delivering meaningful economic reforms.

By prioritizing privatization, infrastructure projects, and tax cuts for the wealthy while neglecting critical social and economic concerns, this budget lacks a clear vision for inclusive growth.

The deepening inequalities and neglect of fundamental welfare imperatives expose a governance model that prioritizes optics over substance, leaving the vast majority of Indians struggling for economic security.

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