On Tuesday, Union Finance Minister (FM) Nirmala Sitharaman stood up to deliver the Union Budget for a record-breaking seventh time in a row. On the other hand, since her first Budget was presented five years ago, the political and economic landscape had significantly changed. The ruling Bharatiya Janata Party now relies on its allies in the National Democratic Alliance to form the government for the first time in the last ten years. Sitharaman’s roughly ninety-minute Budget address made clear the altered political landscape and the changing makeup of the Lok Sabha. First, Bihar and Andhra Pradesh received a lot of attention. The Telugu Desam Party of Andhra Pradesh, several regional parties from Bihar, and the Janata Dal (United) are all necessary for the Union government to remain in power.
Second, the Budget prioritised micro, small, and medium-sized businesses (MSMEs), employment, and agriculture. It is now widely acknowledged that concerns about agriculture and jobs had a big impact on the results of the most recent Lok Sabha elections. This change in emphasis makes economic sense as well, even though a politically elected government is supposed to alter course. The quality of employment has been an issue over the past few years, despite the headline data suggesting a decline in the unemployment rate.
A one-month wage for new hires and support for Employees Provident Fund Organisation contributions in the manufacturing sector are just two of the measures the FM announced in an effort to encourage hiring in the formal sector, as employment must be created in the private sector. Additionally, the government will fund an internship program in the top 500 corporations. Over the following five years, this initiative is anticipated to assist 10 million kids.
Improved production and market access are the goals of the increased attention being paid to the agriculture industry, which employs most of the people either directly or indirectly. Better performance in the agricultural sector will also aid in addressing food inflation, which has recently been the main cause of inflation overall.
The FM refrained from departing from the fundamentals of responsible budgetary management in spite of political pressures. It is estimated that the budget deficit for the current year will be 4.9% of GDP, as opposed to 5.1% in the Interim Budget. The anticipated rise in revenue receipts is substantially more than the reduction in total spending. Because of this, there would be less borrowing from the market overall (at Rs 14.01 trillion) and net (at Rs 11.63 trillion) than there was in 2023–2024. The FM also restated the goal of reducing the fiscal deficit to less than 4.5% of GDP by the following year. After that, the goal of managing the fiscal deficit will be to keep the national government debt as a proportion of GDP down.
The medium-term economic roadmap for India was also anticipated to be unveiled in the first budget of the new administration. This time, the FM did not let us down. The budget prioritised the nine main themes, which included innovation, infrastructure, energy security, and urban development. In order to direct the nation’s growth and development, the Union government is anticipated to expand on its declarations in these areas in the near future.
Notably, next-generation reforms are currently the centre of attention. According to Sitharaman, “we will create an Economic Policy Framework to outline the overall strategy for economic development and define the parameters of the upcoming wave of reforms aimed at promoting job opportunities and maintaining rapid growth.”
All factors of production will be covered by the upcoming generation of changes. The states will need to support the Union government in order to successfully implement some of these reforms. In this case, a sizable portion of the 50-year interest-free loan would be set aside to encourage states to enact reforms. This year, the Union government is lending states Rs 1.5 trillion in long-term, interest-free loans. Advances in labour and land reforms will greatly increase the nation’s business-friendly environment.
The FM announced a number of important things, one of which was a thorough examination of the Customs duty rate system over the next six months. The goal is to eliminate duty inversion, increase trade ease, rationalise and simplify the structure, and decrease disputes. This kind of evaluation had been waiting for a while. Increased tariffs and a convoluted duty system are allegedly among the main trade barriers, which have an immediate impact on India’s export competitiveness. India’s tariff structure should be brought into line with the changing realities of the global economy with the aid of a thorough assessment. Reducing customs tariffs on a number of goods, including cell phones, was a start.
A review of the Income-tax Act of 1961 was also declared to be underway. Once more, the goal is to simplify tax legislation in order to lower litigation and give taxpayers clarity. The stock market was rattled by the FM’s announcement of revisions to the capital gains tax structure and an increase in the securities transaction tax (STT), but it rebounded by the conclusion of the trading day. It is suggested to raise the short-term capital gains tax from 15% to 20% and the long-term capital gains tax from 10% to 12.5%. The derivatives industry is going to see a rise in STT. Part of the goal is to rein in speculative activity on the capital markets, especially from households. In the past, the stock market regulator had also voiced concerns in this respect.
The FM also suggested enhancing the appeal of the new income tax system. Taxpayers on salaries should be able to save up to Rs 17,500 on income taxes. The tax changes are expected to have a total annual impact on the Budget of Rs 7,000 crore.
The government has chosen to remove the angel tax in order to support the start-up ecosystem, among other significant announcements. In addition to the tax liability, it caused disagreements and frightened investors. It is anticipated that a number of initiatives for MSMEs in the manufacturing and service sectors, including the credit guarantee program, loan support during difficult times, and a new evaluation model, will aid in the expansion of businesses in this sector. Businesses and employees should both gain from the promotion of rental housing for industrial workers.
The market was worried that political pressure would push the government to raise spending sharply, jeopardising budgetary responsibility. But nothing of the such occurred, and by the next fiscal year, the administration plans to keep the fiscal deficit below 4.5% of GDP. It was predicted that the capital spending outlay, which represents 3.4% of GDP and was raised in the interim budget, would be maintained. Overall, the government succeeded in striking a balance between political and economic goals.