A budget that ticks all boxes

The around ₹1 lakh crore that the government will have to forego in tax on account of the tax relief promised has not changed the integrity of the overall math of the budget. Budget 2025-26 expects direct tax revenue to increase by 12.6% and overall tax revenue by 10.8%. It also has not slashed revenue spending; even without interest payments, the overall expenditure (on the revenue account) planned for 2025-26 is 4.2% higher than that according to the revised estimates for 2024-25, and 4.8% more than that according to budget estimates. The budget puts the capital expenditure for 2025-26 at 11.21 lakh crore, higher than the ₹11.11 lakh crore budgeted for 2024-25 (and also the 10.18 lakh crore actually spent). This translates into roughly 3.1% of GDP, with the effective capital expenditure of ₹15.48 lakh crore working out to 4.3% of GDP — both proportions that are not very different from last year’s.

Shorn of all the numbers, this simply means that the Modi government has retained its emphasis on capex. The fiscal deficit, as estimated by the budget, is 4.4% of GDP, marginally lower than what people expected it to be. The government has previously explained that the inability to meet the capex target in 2024-25 was largely because of the national elections in the first quarter of the year; if that is indeed the case, and the missed target was not on account of capacity issues, there is no cause for concern.

There’s an implicit expectation that private investment will step up — and the budget has sought to create a conducive environment for that with its emphasis on deregulation and its focus on manufacturing; many of the changes in customs duty, for instance, will make the Indian manufacturing industry more competitive. This is a reasonable expectation; since the pandemic, the government has taken the public investment route to growth. To be sure, the government can only manage the local environment. The global economic situation is fraught with risks and any of these could make the private sector chary of big-ticket investments, but this is beyond the government’s control. The budget has also made provisions for the right levers — of the three biggest incremental revenue spends across ministries, for instance, two involve jobs, and the third, research and innovation.

Previous budgets have sought to do this too — increase productive spending on infrastructure, and create an enabling environment for business — and many have not been found wanting when it comes to big ideas or reformist intent, but where Union Budget 2024-25 differs is that it clubs these with a generous tax relief package for the middle class. It is likely that the motivation for this stemmed from the BJP’s below-par performance in the 2024 national elections — one that has made it dependent on allies to muster the numbers required for a parliamentary majority — but a boost in consumption is also just what the economy needs at this point in time. The budget is fiscally responsible (and sound). It continues to emphasise the creation of productive assets. It focuses on skills, jobs, and research. And it has provided a boost to consumer sentiment and, most likely, demand.

With her eighth budget, finance minister Nirmala Sitharaman has checked all the boxes.

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