The Indian Finance Minister introduced the Union Funds 2025-26 on Saturday, February 1st, marking a notable departure from the federal government’s earlier infrastructure-focused method in direction of a consumption-driven financial technique. Nevertheless, each critics and opposition leaders argue that the brand new path could not adequately handle elementary financial challenges.
Former Union Finance Minister P Chidambaram launched a pointy critique of the finances, suggesting that most of the new schemes introduced are “past capability of this authorities.” The veteran Congress chief characterised the finances as an try and woo the tax-paying center class and Bihar citizens, predicting that financial development would stay modest at “not more than normal 6% or 6.5% in 2025-26.”
The finances’s cornerstone announcement entails important earnings tax aid, with no tax payable on annual incomes as much as ₹12 lakh underneath the brand new regime. Finance Minister Nirmala Sitharaman argues this can “considerably cut back the taxes of the center class and depart more cash of their palms.” Nevertheless, the Centre for Monetary Accountability (CFA) factors out that this is able to profit merely 2% of India’s inhabitants, as solely a small fraction of Indians fall inside the earnings tax bracket.
The Financial Survey, launched alongside the finances, acknowledges a number of structural challenges dealing with the Indian economic system. These embrace declining credit score development, with the loan-to-deposit ratio at 80%, slowing overseas direct funding, and weakening export competitiveness. The survey additionally notes that family earnings development has remained stagnant, notably affecting rural wages.
By way of social safety measures, the finances maintains the established order on a number of fronts. The Nationwide Social Help Programme’s allocation stays at ₹9,652 crore, whereas its share within the complete finances has marginally decreased from 0.20% to 0.19%. Equally, the Mahatma Gandhi Nationwide Rural Employment Assure Act (MGNREGA) allocation stays unchanged at ₹86,000 crore, regardless of expenditures approaching ₹1 lakh crore as of February 2025.
The banking sector presents a combined image, with the Gross Non-Performing Property ratio reaching a 12-year low of two.6%. Nevertheless, this enchancment comes after banks wrote off ₹16.5 lakh crore in unhealthy loans over the previous decade, with ₹1.69 lakh crore written off in 2024 alone.
Trade leaders have typically welcomed the consumer-focused method. Kamal Bali, President & CEO of Volvo Group in India, estimates that “25-30 million private taxpayers will save round 100,000 rupees yearly,” probably boosting discretionary spending together with car purchases. ITC Chairman and Confederation of Indian Industries President Sanjiv Puri endorsed the middle-class aid, noting that “consumption is about 60% of the economic system, so offering a lift to that was a lot required right now.”
Nevertheless, some analysts categorical considerations concerning the shift away from capital expenditure. Gaurav Dua, Senior Vice President at Mirae Asset Sharekhan, factors out that the federal government is falling wanting assembly its central authorities allocation of 11 trillion rupees in FY2024-2025, with diminished allocation in sectors together with defence.
Moody’s Senior Vice President Christian de Guzman famous that whereas the federal government stays on monitor to fulfill near-term coverage targets, the introduced tax aid measures may constrain income development, probably affecting India’s fiscal energy in comparison with investment-grade friends.
The railway sector maintains related allocation ranges to the earlier yr, regardless of considerations about security following 313 passenger fatalities in 40 prepare accidents throughout 2023-24. The true property sector acquired combined evaluations, with Anarock Group Chairman Anuj Puri noting each direct and oblique advantages however highlighting “a notable shortfall” in bulletins for the reasonably priced housing sector.
DBS Financial institution Senior Economist Radhika Rao observes that the finances carries each quick and medium-term focus, with fiscal self-discipline remaining a precedence. The federal government has outlined a forward-looking glide path to align deficit targets with debt ranges, whereas sustaining a bias in direction of supporting development.
HDFC Financial institution Principal Economist Sakshi Gupta initiatives 6.6% GDP development in 2025-26, suggesting the tax rationalization may spur client demand and financial savings for the center class, which has confronted challenges from elevated inflation and decrease earnings development.
As India positions itself for what the federal government phrases “Viksit Bharat 2047” (Developed India 2047), the finances displays a recalibration of financial priorities. Nevertheless, questions persist about whether or not these changes will successfully handle the basic challenges dealing with the world’s most populous nation, notably when it comes to inclusive development and financial resilience.
