Glance of Union Budget 2025

Syllabus: Economics

Source:  TH

Context: Finance Minister presented the Union Budget 2025 on February 1, 2025, announcing major tax reliefs, infrastructure investments, and employment generation initiatives.

Major Proposals of Union Budget 2025:

• Income Tax Exemption Increased: No income tax up to ₹12 lakh under the new tax regime, benefiting the middle class.

E.g. Salaried taxpayers get ₹12.75 lakh exemption due to standard deduction.

• Capital Expenditure Hike: ₹11.21 lakh crore allocated for infrastructure, 10% increase from FY24-25.

E.g. ₹2.3 lakh crore for railways, ₹1.3 lakh crore for expressways.

• National Manufacturing Mission: Aims to boost ‘Make in India’, reduce import dependency, and enhance industrial production.

E.g. Expansion of PLI schemes for semiconductors & electronics.

• Employment Generation Drive: 22 lakh jobs to be created, focusing on MSMEs, leather, and textile sectors.

E.g. ₹4,000 crore allocated for MSME credit expansion.

• Agriculture Sector Support: Prime Minister Dhan-Dhaanya Krishi Yojana to boost 100 low-yield districts, with ₹1.2 lakh crore rural credit push.

E.g. KCC loan limit increased to ₹5 lakh.

• Nuclear Energy Mission: ₹20,000 crore allocated for Small Modular Reactors (SMRs), with five SMRs operational by 2033.

E.g. Strengthening India’s clean energy roadmap.

• Boost to UDAN Scheme: Expansion of regional connectivity to 120 new destinations under the modified UDAN scheme.

E.g. Target of 4 crore passengers in 10 years.

• Makhana Board in Bihar: Dedicated board for Makhana production & export promotion, enhancing value chain & marketing support.

E.g. ₹500 crore for Makhana farmers’ welfare.

• Reduction in Fiscal Deficit: Target reduced to 4.4% of GDP from 4.8%, focusing on fiscal consolidation.

E.g. ₹11.54 lakh crore net market borrowings planned.

• Green Energy and Climate Push: ₹10,000 crore for lithium-ion battery recycling and solar PV incentives to strengthen clean energy.

E.g. Green hydrogen production incentives introduced.

Positives of Indian Budget 2025:

• Boost to Middle-Class Consumption: Tax relief of ₹1 lakh crore increases disposable income, driving higher demand in retail, auto, and real estate.

E.g. Auto sector expected 15% sales growth due to increased purchasing power.

• Strong Fiscal Discipline: Fiscal deficit target reduced to 4.4% of GDP from 4.8%, ensuring macroeconomic stability.

E.g. Revenue growth projected at 11.2%, balancing deficit concerns.

• Infrastructure Expansion: Increased capital expenditure to ₹11.21 lakh crore boosts logistics, transportation, and energy sectors.

E.g. ₹2.3 lakh crore for railway modernization.

• Support for MSMEs and Startups: New credit schemes and relaxed compliance norms for MSMEs.

E.g.  ₹20,000 crore allocated to enhance small business financing.

• Thrust on Nuclear Energy & Green Transition: ₹20,000 crore allocated for a Nuclear Energy Mission and development of five small modular reactors (SMRs) by 2033.

E.g. ₹10,000 crore for lithium-ion battery recycling & solar PV incentives.

Limitations in Budget 2025

• Overestimated Revenue Projections: Income tax revenue growth target at 14.4% seems ambitious despite major tax cuts.

E.g.  Revenue foregone due to tax exemptions at ₹1 lakh crore.)

• Limited Agricultural Reforms: No structural reforms in MSP mechanism or crop diversification incentives, continuing farmer distress.

E.g. Wheat & rice stockpile issues remain unaddressed.

• Lack of R&D Focus: India’s R&D spending remains 0.64% of GDP, far below global standards like China (2.2%) or Germany (3.1%).

E.g. No major funding for industrial R&D innovation.

• Subdued Private Investment Boost: While capex is increased, no major incentives for private sector to drive investments.

E.g. PLI schemes need further policy clarity & execution speed.

• Missed Opportunity for Export Growth: While UDAN Scheme expansion helps domestic connectivity, export incentives remain weak.

E.g. No major tax rebates for high-value exports like pharmaceuticals & electronics.

Way Forward

• Diversify Tax Revenue Sources: Broaden GST base and reduce dependence on income tax to sustain revenue growth.

E.g. Rationalizing GST slabs for better compliance.

• Comprehensive Agri-Reforms: Implement market-based MSP and export-driven agricultural strategies.

E.g. Promote millets & organic farming for global markets.

• Strengthen Manufacturing & R&D: Increase R&D spending to 1.5% of GDP and encourage clean-tech industries.

E.g. Incentives for AI-driven manufacturing to enhance global competitiveness.

• Enhance Private Sector Participation: Strengthen PPP models in infrastructure, energy, and transport sectors to reduce fiscal burden.

E.g. Involve private players in smart city projects.

• Long-Term Climate Strategy: Develop Green Energy Fund and scale up solar, wind, and hydrogen investments.

E.g. ₹5,000 crore for green hydrogen production targets.

Conclusion:

The Union Budget 2025 is a growth-oriented and middle-class-friendly budget with major tax reliefs, infrastructure expansion, and job creation plans. While the fiscal discipline and manufacturing push are commendable, agriculture and exports need deeper reforms. A balanced execution strategy will be key to achieving Viksit Bharat’s long-term economic goals.

Insta Links:

PYQ: