Benevolent and bountiful for the middle class, yet beaming to make Bharat Viksit and boundless by 2047! Why is Budget 2025 -26 special on both counts of consumption and capex? How did the Finance Minister balance growth and fiscal deficit at the same time? How does Budget 2025/26 put special impetus on the backbone of the economy – the MSMEs and Agri sector?
Budget has addressed the need and necessity of all-rounded growth for every segment of society including agriculture, middle class, small and medium enterprises, street vendors, gig workers, professionals, businessmen, self-employed and industrialists.
Bonanza for Taxpayers
Let’s understand how.
12 lakh income tax break – The biggest bazooka that stole the show on Feb 1, 2025 was the Finance Minister’s announcement of zero tax for individuals up to an income of Rs 12 lakh per annum and Rs 12.75 lakh per annum (including standard deduction) for salaried individuals (Under New regime).
To put this in perspective and under the context, one has to go behind into history. COVID-19 in CY 20 and CY 21 was perhaps the most challenging time in recent human history. Whilst lot many Governments, during such time, gave a boost to the economy by pushing Direct Cash transfers to individuals and corporate entities, to propel demand, resulting in higher inflation and thus yielding higher interest rates to curb such inflation, Bharat stayed on course with enhancing the CAPEX spent or capital expenditure in FY 21.
Circling back to the perspective on consumption boost. This tax break will put Rs 1 lakh crore directly in the hands of individuals. Interestingly, in a country of 140 crore population, with 31 crore households, for the assessment year 2023-24, the total number of individuals who filed their taxes was Rs 7.98 crore.
Out of these tax filers for AY 23 -24, there are only 1.3 crore individuals who filed their returns above INR 10 Lacs p.a. (Source: Incometaxindia.gov.in) In other words, 84 per cent or more of the individuals who were filing their taxes, will not pay any taxes henceforth. Obviously the government’s expectation here is twofold.
- More honest and clean filing of returns by individuals (The ones who have lesser income and have been dealing in cash to come ahead and file Zero tax returns and be part of the formal economy. Money in cash moves three times. Money in the Bank moves seven times, and money digitally moves 9 times, thereby enhancing the velocity of money, and speeding up the economy.
- As the economy grows, one makes more money and thus pays a fair share of taxes towards the country’s growth and safety.
This tax break will enhance citizens marginal propensity to consume, which is estimated to be 50 per cent by most economists for Bharat, giving a fillip to all sectors, segments and industries including cars, mobile phones, restaurants, white goods, housing, etc to name a few.
Money saved in taxes for a few months, can leveraged, with easy access to credit. Thus consumers can plan their first home, with these savings or first pilgrimage or first car to be gifted to one’s parents for their comfort.
Precisely the way Infrastructure spending creates a multiplier effect across all sectors of the economy, similarly consumption boost furthers the multiplier effect as well.
Decoding the Code (the formula)
Consumption Multiplier: 1/ (1-Marginal Propensity to Consume)
If the tax breaks are going to bring benefits of Rs 1 lakh crore to individuals in the economy, Consumption Multiplier will create a mammoth Rs 2 lakh crore of additional income, thrusting the economy to speed up.
Most media houses and economists have given a thumbs down to the government on the capex front.
Is it the reality or the narrative of the Left?
One is very well aware that the Capex multiplier works better than the consumption multiplier and hence government this time has worked on both and not one (amidst global headwinds, rising protectionism, higher interest rates for longer, swinging seesaw inflation, US-China trade wars, potential disruption of global supply chains).
Deciphering the dilemma that government addressed
According to the National Institute of Public Finance and Policy, the Capital Expenditure Multiplier brings in an immediate impact of 2.45 X (times) in the very same year, it is spent. Additionally, through the years, the capex spend cumulatively creates an impact of 4.80 X.
As articulated above, there has been a lot of criticism across corners on the lack of spending on capex. Guess the fine print and the line items were not taken into account. For FY 2025, the Government had budgeted a capex of Rs 11.11 lakh crore. However, revised spending for FY 25 is only estimated at Rs 10.18 lakh crore.
For FY 26, the Government has budgeted a sum of Rs 11.21 lakh crore, an optically paltry jump from Rs 11. 11 lakh Crores to Rs 11.21 lakh crore, less than 1per cent.
A quick remark here. In FY 11, the then UPA government allocated 1.73 lakh crores on Infra spend, and that number jumped to 11.21 lack crore in FY 25 (6.5X jump in a decade and a few years).
Digging deeper into the document, one gets to know, that revenue grants given to the State Governments by the Central Government for undertaking local state capex for FY 25 stood at Rs 3 lakh crores, whilst that number has jumped to Rs 4.27 lakh crore for FY 26, a whooping jump of over 42 per cent.
In other words, the Central Government is giving more autonomy to the state government to use the funds as per their requirement for gross capital formation and growth. It doesn’t end here.
Money saved in taxes for a few months, can be leveraged, with easy access to credit. Thus consumer can plan their first home, with these savings or first pilgrimage or first car
The Government continues to support the capex with IEBR (an internal and extra-budgetary resource) of Rs 4.3 lakh crore for FY 26 vs Rs 3.8 lakh crore for FY 25.
Thus the Capex number that, looks at less1per cent capex jump between FY 25 and FY 26, is enhanced by 17 per cent. Where is this money going to be spent? Whilst the list is long.
Securing the Rashtra is Supreme Duty
In a chaotic world, where one war is continuing, and one has temporarily paused, unsettled neighbours with regime change, safety, security and safeguarding Rashtra’s interest and borders including coastlines remain paramount.
Because of the same, a record 6.81 lakh crores has been allocated to the Ministry of Defence, a handsome increase of 9.53 per cent over the FY 25 allocation. Since exports and maritime remain the focus with the development of inland and coastline waterways, ICG (Indian Coast Guards) has witnessed a gigantic jump in their capital budget with a 43per cent rise. Over 26 per cent of the Defence Ministry Budget will go towards Make in India Defence Equipment, arms, ammunition and modernised weaponry, fighter planes, warships, aircraft carriers, surveillance drones, unmanned air vehicles, submarines and more which is not visible to the common man’s eyes.
Thanks to unstopped efforts from the current government, a country that once used to look at Russia, the US, or France or West for every fighter plane, is now manufacturing the smallest and lightest, supersonic combat aircraft.
Augmenting Wealth and Well-being of Annadatta
In Kaliyug, Annadan is considered the highest degree amongst all daan as Anna is essential to maintain the body and the body is essential to attain knowledge of Moksha (Salvation). Hence, farmers are critical for the country and for the country’s food safety and security. In the 60s when Indians had to sacrifice one meal to save food grain imports, Bharat has come a long way of self-sufficiency.
Bharat today is the world’s second-largest producer of rice, wheat, sugarcane, groundnuts, vegetables, fruit, and jute. Today it tops the list of milk, pulses, and jute production.
The Government is constantly concerned: Is the producer of grains gaining and getting this benefit of enhanced output?
- To solve the challenges of the rural population and agriculture, the government has allocated Rs 3.9 Lakhcrores a significant sizing up of the budget with a 24.80 per cent jump.
- If one only looks at allocation on agriculture alone on which all Left liberals and communists and Khalistanis make noise, The Government of Bharat has significantly increased budget allocations, rising from Rs 12 K crore in 2008-09 to Rs 1.22 lakh crore(Over 10 time in a decade and half) in 2024-25, demonstrating its commitment to Annadata.
- Prime Minister Dhan-Dhaanya Krishi Yojana is all set to be rolled out in 100 low-crop productivity districts. This initiative in itself will help 1.7 crore farmers to enhance agricultural productivity, improve irrigation facilities and facilitate long-term and short-term credit availment.
- Kisan Credit Cards, an easy move for farmers and Krishi (agri) related families to access credit and funds will benefit from the government’s proposal to enhance the credit limit from 3 Lakh to 5 Lakh. This move in turn will benefit Rs 7.75 crore farmers and agri-related, agri-involved individuals. This will also build the credit history of the farmers thereby bringing them into the anvil of formal banking and credit system.
Magnifying MSME Future
Over 5.93 crore MSME (Micro, Small and Medium Enterprises) play a pivotal role in Bharat’s growth and exports. These MSMEs employ over 25 crore people and account for over 45 per cent of total exports, earning precious foreign currency for the country at the moment when Bharat’s Rupee yet needs to be completely globalised. One major step undertaken in this Budget is the expansion of the definition of MSME to help MSMEs scale up better. Thus the investment and turnover limits for classification have been increased by 2.5 times and 2 times, respectively.
Two costs are prohibitive for any MSME – One is transportation (logistics) and one is Credit cost.
- To ensure easy access to credit, The credit guarantee cover for micro and small enterprises has been increased from Rs 5 crore to Rs 10 crore, enabling additional credit of Rs 1.5 lakh crore over five years. Exporter MSMEs have been provided with term loans up to Rs 20 crore with enhanced guarantee cover.
- A new customised Credit Card scheme has also been introduced to provide micro-enterprises with an Rs 5 lakh credit limit. This will benefit over 10 lakh Micro units. Again the idea here is to build credit scores and credit history so that availing credit gets easier and credit costs reduces.
- To substantially reduce the ease of transportation, transportation documentation and logistics, the government has introduced Bharat Trade Net, a unified Platform for trade documentation as well as integrated financing solutions. This will bring customs, DGFT, GSTN, banks, and exporters into a single unified digital platform, eliminating the need for a paper-based process, and reducing the time from the MSME Unit to the Export Country.
The Budget allocation of MSMEs has jumped 3.3X in 6 years from Rs 7011 crore to Rs 23,168 crore, projected for FY 26. Result of successive efforts from the Government, MSME exports have seen a jump of 3 X between FY 21 and FY 25.
A lot more has been done across sectors including Healthcare, where several cancer medicines have been removed from the anvil of GST to ensure Cancer patients get cheaper medicines.
Balancing Growth and Borrowings
In FY 2013 – 14, the fiscal deficit of the country stood at 4.5 per cent of the GDP, whilst for FY 26, it is expected to be 4.4 per cent. This feat is remarkable as the pandemic pushed the fiscal deficit to nine per cent level, which was undertaken to rejuvenate the economy and Rashtra then.
In FY 2014, whilst 22.5 per cent of the total budgetary expenditure of the then Central Government was towards interest payments on loans and borrowing, for FY 26, it is projected to be reduced by 10 per cent bringing the budgetary allocation towards interest payment down to 20 per cent.
This Budget brings two engine growth with a boost in consumption along with Capex Upsurge, thus in a true Sense spawing a Swarnim Budget for Swarnim Kaal.
Comments