Budget of Bold Ambitions

The Modi government’s Budget 2025 aims to placate the middle class while betting big on economic transformation.

Mumbai: Union Finance Minister Nirmala Sitharaman on Saturday presented the Union Budget for 2025-26 armed with promises of tax relief, economic transformation and a roadmap to propel India toward its grand ambition of a developed India.

At its core, the budget delivers sweeping tax relief to the middle class, with zero tax on incomes up to Rs. 12 lakh and savings of Rs. 1.10 lakh for higher earners. Markets cheered the move, but the old question remains: Do tax cuts drive growth or just win votes? With Rs. 50.65 lakh crore in spending, Sitharaman’s speech, rich in nationalist rhetoric, promises economic revival through industry, self-reliance, and reform.

At the centre of the economic strategy is an effort to turbocharge India’s manufacturing sector. The National Manufacturing Mission is designed to bolster domestic production, particularly in high-stakes industries such as electronics, automobiles, and renewable energy. Import duties on essential minerals for EV batteries - cobalt, lithium, and zinc – have been slashed, signalling a clear push for India to emerge as a global EV hub. Custom duty exemptions on capital goods for solar PV cells reflected another long-term goal of breaking China’s dominance in renewable energy supply chains.

One of the more striking aspects of the budget has been its emphasis on agriculture and rural development. The PM Jana Dhanya Krishi Yojana, targeting 100 low-productivity districts and impacting 1.7 crore farmers, signals a direct intervention in food security. Meanwhile, a six-year mission for self-sufficiency in pulses, a major urea plant in Assam and an overhaul of cotton production hinted at a government willing to put agriculture at the heart of economic planning.

Beyond agriculture, the budget has taken significant consideration at the manufacturing sector, particularly the micro, small, and medium enterprises (MSMEs), which employs 7.5 crore people and contributes significantly to India’s exports. By enhancing classification limits and doubling credit availability, the government has sought to position MSMEs as engines of growth. However, the challenge here has always been implementation. Successive policies have touted the potential of small businesses, but bureaucratic red tape and poor credit flow have historically stifled their success.

The budget’s focus on urban development was another headline-grabber. A Rs. 1 lakh crore fund for developing ‘new-age cities’ suggest that the government is thinking ahead, even as it struggles with the immediate crisis of job creation and economic disparity. Meanwhile, the expansion of the Udaan scheme to cover 120 new destinations and serve 4 crore additional passengers in the next decade appears to be a nod to regional connectivity.

Perhaps the most significant long-term proposal was the announcement of a new Income Tax Bill to replace the six-decade-old Income Tax Act of 1961. While the details of the bill are yet to be unveiled, its implications could be far-reaching, with promises of simplifying compliance and rationalizing tax structures. The government has also pushed its broader deregulation agenda, vowing to decriminalize 100 provisions across tax regimes and setting up a high-level committee for regulatory reform. In theory, these moves could make doing business in India easier, but in practice, deregulation often faces institutional inertia.

While the government hailed these moves as economic masterstrokes, sceptics have urged caution. The Economic Survey preceding the budget had underscored one major concern: sluggish urban demand. With inflation weighing on household consumption, it remained unclear whether tax cuts alone could revive spending. The government’s proposed fiscal deficit target—4.4 percent of GDP in FY26, down from a revised 4.8 percent this year—suggests a balancing act between expansion and caution. But fiscal responsibility, as history shows, often meets its toughest test in the implementation phase.

One of the budget’s more politically resonant initiatives was the transformation of India’s postal network into a public logistics behemoth. With 1.5 lakh rural post offices and 2.4 lakh dak sevaks positioned as last-mile connectivity enablers, the move was seen as a direct challenge to private players like Amazon and Flipkart. If executed well, it could fundamentally reshape rural commerce, turning India Post into a key player in e-commerce logistics.

Beyond taxation and industry, the budget carried a strong strategic undertone: reducing economic vulnerabilities to China. The Economic Survey had explicitly acknowledged the ‘China threat,’ and the budget followed through with policies aimed at cutting dependency. Measures to enhance domestic MSME capacity, expand solar PV manufacturing, and boost defence production aligned with this larger objective. The government’s bet was clear—if India was to become a manufacturing giant, it had to first unshackle itself from Beijing’s economic shadow.

For all its ambition, Sitharaman’s budget leaves key questions unanswered. Infrastructure projects often stall in bureaucratic red tape, the EV and renewables push risks outpacing domestic supply chains, and deregulation may face resistance.

Budget proposes GST amendment

The Union Budget has proposed a host of amendments in GST law, including implementing the Track and Trace Mechanism, for evasion-prone goods.

The budget inserted a new clause in Central GST law to provide for a definition of Unique Identification Marking for the implementation of Track and Trace Mechanism.

"Unique identification marking" includes a digital stamp, digital mark or any other similar marking, which is unique, secure and non-removable.

AMRG & Associates Senior Partner Rajat Mohan said the introduction of penalties under new sections like 122B and 148A to enforce track and trace mechanisms indicates a strong push towards digitisation and better supply chain monitoring.