By Megha Jain and Vanyaa Gupta
The government merits applause for presenting such people’s driven budget. Union budget 2025, does mark a streak of hope in a tumultuous geopolitical situation for India. Let’s look into some key highlights of the Union budget 2025.
A definite bonanza for middle class
Nil tax shall be payable up to an income of ₹12 lac. A 30% tax rate comes only above ₹24 lac. The consumption story is clearly being prioritized in this budget. This essentially will have a ripple effect on growth. This implies greater disposable income available to the public. The same shall naturally boost urban consumption and confidence. Higher demand for goods and services can encourage businesses to invest and expand, leading to job creation and further economic activity. The finance minister has delivered more than what people had anticipated.
The success story though will be dependent on how the middle class chooses to deploy these additional resources, be it via consumption, investment, or savings. Whatever the case, it, indeed, is going to uplift the Indian economy. This, in turn, suggests a favorable outlook for FMCG stocks and increased engagement with convenience platforms such as Swiggy and Zomato.
The start-ups equation
The government announced a fresh contribution of ₹10,000 crore to the 'Fund of Funds' for start-ups. The scheme allocates the same in various venture capital funds, which in turn provide funding to early-stage companies. This fund has already supported over 1100 start-ups, but they require further assistance. Indian start-ups, particularly in the technology sector, have been experiencing a funding winter, making this new government investment a potential catalyst for renewed investment and growth. Further, the government extended the benefits under Section 80-IAC of the Income Tax Act for start-ups, incorporated before April 1, 2030.
This allows eligible start-ups to claim a 100% tax exemption on their profits for three consecutive years within the first ten years of their existence. This provides substantial financial relief and encourages both promotion and growth, especially to those that are in the crucial nascent stages of survival battle.
AI, the fuel for future
The Indian Budget 2025 demonstrates a clear commitment to advancing AI in the country, with a major allocation of ₹500 crore towards establishing a Centre of Excellence in AI for education. This initiative aligns with the government's broader vision of making India a global leader in AI. By investing in AI knowledge-based education, the government is laying the foundation for a future-ready workforce and a knowledge-based economy.
Micro Small Medium Enterprises (MSMEs)
The government has significantly increased the investment and turnover limits for MSME classification. This means that more businesses will now be eligible to be classified as MSMEs, allowing them to access various benefits and support schemes. For instance, Micro Enterprises, investment limit increased from ₹1 crore to ₹2.5 crore and turnover from ₹5 crore to ₹10 crore, for Small Enterprises, investment limit increased from ₹10 crore to ₹25 crore and turnover from ₹50 crore to ₹100 crore, for Medium Enterprises, investment limit increased from ₹50 crore to ₹125 crore and turnover from ₹250 crore to ₹500 crore.
This revision aims to encourage MSMEs to grow and expand without fear of losing their classification benefits. Moreover, the budget includes enhanced credit access for them via increased credit guarantee cover (the government has doubled the credit guarantee cover for micro and small enterprises, from ₹5 crore to ₹10 crore which will encourage banks to lend more to MSMEs, as the risk is reduced), customized credit cards (the budget introduces customized credit cards with a ₹5 lakh limit for micro-enterprises registered on the Udyam portal which will provide easy access to working capital for these businesses). In addition, the government is incentivizing MSMEs via better credit guarantees. These are now eligible for 20 crores of collateral-free credit, earlier it was 10 crores only.
Business made easy
Businesses will benefit from tax relief, including reduced customs duties and tariffs on a range of goods. The government has streamlined the tariff structure, cutting the number of different rates from 15 to 8. A basic customs duty is also being lowered on several key items, such as 12 critical minerals, 35 capital goods used in EV manufacturing, and 36 life-saving drugs. Overall, the customs and tariff-related announcements in the Budget 2025 reflect the government's commitment to simplifying the trade regime, promoting domestic manufacturing, and improving the ease of doing business in India.
Infrastructure, the building block of economy
For the past decade, the NDA government has strategically prioritized infrastructure investment to fuel economic growth. This year is no exception, with a massive $130 billion allocation earmarked for roads, railways, and ports. This investment is a key component of the government's ambitious plan to achieve a $5 trillion economy and build sustainable, smart cities. The budget encouraged public-private partnerships (PPP) in urban infrastructure development, with measures to streamline processes and attract private sector investment. By investing in urban infrastructure, promoting technology and innovation and focusing on sustainability, the government aims to create resilient and economically vibrant urban spaces for all, aiming to make India a tech-savvy nation on the global landscape.
(Graphic courtesy: PIB)
Attracting FDI
The Indian Budget 2025 has made a significant move regarding FDI in the insurance sector by removing the earlier FDI limit. This means that 100?I is now permitted in insurance companies. This shall lay a new foundation via increased foreign participation that will open the doors for greater participation of foreign players in the Indian insurance market with global insurance giants’ stronger presence in India. It shall further provide an additional influx via capital infusion.
Government’s spending spree, the fiscal deficit
This year the fiscal deficit stands at 4.8%. In the next fiscal, the government plans to bring it down to 4.4% of GDP. The reduction of the fiscal deficit from 4.8% to 4.4% sends a strong message of fiscal prudence to the world. This move reassures global investors that India is committed to both development and growth. This budget is designed to pave the way towards visionary Viksit Bharat.
Manufacturing, the second leg of economy
The government has announced a "National Manufacturing Mission" to provide a significant push to the "Make in India" initiative. This mission aims to increase the share of manufacturing in India's GDP to 25% from the current 15-16%.
Agriculture, sowing seeds for future
India has more agricultural land under cultivation than any other country in the world including the USA. The budget contains certain key initiatives to support the Indian primary sector. It includes Prime Minister Dhan-Dhaanya Krishi Yojana, Rural Prosperity and Resilience Programme, Mission for Cotton Productivity, Increased Loan Limits, and Support for Pulses and Other Crops.
Way towards newer horizons
Certainly, the government is focusing on new avenues. It has outlined six strategic priorities - taxation, power, urban development, financial sector, mining, and regulatory reforms. The finance minister promised systematic strategic transformational reforms in these identified areas. The world has changed. Global headwinds are stronger, developed nations are looking inward, globalization is faltering and geopolitics now dictates trade. India, while navigating these shifts relatively well, hasn't been immune. Growth has slowed, streets have tumbled and investments have stalled. A new game plan is needed. This current budget signals recognition of the new reality and a bold step towards a brighter future.
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(Dr Megha Jain is an Assistant Professor at Shyam Lal College, University of Delhi, and a Visiting Fellow at Pahle India Foundation. Er Vanyaa Gupta is a seasoned technocrat in Delhi, India.)
The views expressed are not necessarily those of The South Asian Times
