India unveils middle-class friendly budget; to help boost investment
NEW DELHI, 3 days ago
India will focus on boosting the spending power of its middle class population, encouraging inclusive development and private investment to strengthen growth, Finance Minister Nirmala Sitharaman said on Saturday, announcing the annual budget.
Measures to assist the poor, the youth, farmers and women were also a part of the budget for 2025-26, said Sitharaman, highlighting plans for "transformative reforms in taxation".
The government said people earning up to 1.28 million Indian rupees ($14,800) per year will not have to pay any taxes, raising its threshold from 700,000 rupees. It also lowered tax rates for people earning above the new threshold, reported Reuters.
"The new structure will reduce taxes on middle class and leave more money in their hands, boosting household consumption, savings and investment," Sitharaman said in parliament.
The move will result in an annual 1 trillion Indian rupee ($11.6 billion) hit to Treasury revenues.
Measures to assist the poor, youth, farmers and women were also included in the budget for 2025-26, she added.
Hailing the budget, Prime Minister Narendra Modi called it as the "budget for the common man", with the main focus on farmers, women and the young individuals of the nation.
He made the remarks at a Cabinet meeting today ahead of the budget presentation in Parliament, sources said.
"This is the budget of 'GYAN' (garib, yuva, annadaata, rani)," the Prime Minister added.
Sitharaman pointed out that ‘Make in India’ is one of the 10 broad areas of focus for the government in the coming year, reported The Indian Express.
“In this Budget, the proposed development measures span ten broad areas focusing on Garib [the poor], Youth, Annadata [farmers], and Nari [women]… 6) Boosting manufacturing and furthering Make in India…,” the Finance Minister said.
With big-bang income tax relief in Budget 2025-26, Sitharaman is betting big on the middle class. The idea is to leave more money in the hands of the section of the population that is the biggest spender, and trigger a multiplier effect to boost consumption, and thereby, India's economy, reported India Today.
Going by Sitharaman's calculation, the government would be foregoing Rs1 lakh crore in direct tax revenue. That money is likely to partly return to the system as people spend more, driving up consumption and the indirect tax collection of the government, it stated.
After tax breaks to corporates failed to boost the economy, Sitharaman has placed a big bet on the middle class with tax sops in Budget 2025-26, it added.
The tax cut is "likely to spur consumer demand and savings by the middle class that has faced challenges from elevated inflation and lower income growth," Sakshi Gupta, economist at HDFC Bank.
The move led to a rally in consumer stocks such as Maruti Suzuki, Godrej Consumer Products and Prestige Estates which jumped by 4% to 8%.
Green signal for small cars, bikes
The tax relief for the Middle class is expected to spur demand for cars, two-wheelers and electronic goods, such as mobile phones, single-door refrigerators and semi-automatic washing machines, reported Times of India.
RC Bhargava, chairman of Maruti Suzuki, said if you put money into the pocket of taxpayers and keep inflation under check, which the budget is doing, then this money becomes available for consumer spending.
The car industry has been under pressure for about a year, and companies had been seeking a demand booster.
Shailesh Chandra, MD of passenger vehicles at Tata Motors, said the budget's focus on rural prosperity, coupled with reforms in personal income tax, are likely to help create demand.
The two-wheeler industry may be one of the biggest beneficiaries of the income tax relief. Pawan Munjal, chairman of Hero MotoCorp, said the budget gives a boost to manufacturing, green mobility, and rural empowerment, factors that will help create jobs.
White goods sellers also expect greater consumption. Manish Sharma, chairman of Panasonic Life Solutions India & South Asia, said the budget has a focus on putting more money in the hands of people, and this will drive consumption.
To balance the revenue lost, the government has budgeted for a modest increase in capital spending this year, which will rise to 11.21 trillion rupees in 2025-26 compared to a lowered 10.18 trillion in the current year.
The modest infrastructure spending increase disappointed investors in the sector and stocks of firms including Larsen & Toubro, NBCC, IRB Infra and KEC International were down between 1% and 6%.
The government expects to improve its finances, targeting a fiscal deficit of 4.4% of GDP in 2025-26, down from a revised 4.8% of GDP in the current year.
It will borrow 14.82 trillion Indian rupees via the bond markets to fund this year's fiscal deficit.
The government, however, refrained from pre-empting the impact of potential tariffs from US President Donald Trump on India and focussed on lowering some input costs for industries that have been raising output such as electronics and renewables.
Big-bang healthcare reforms
In one of the biggest announcements in healthcare in several years, the budget has made a number of life-saving drugs a lot more affordable and accessible.
The finance minister has fully exempted 36 cancer and rare diseases therapies from basic customs duty, and she has reduced the import duty to 5% on six critical medicines.
She also unveiled Modi government's plans to reform Indian postal services in a big way by setting up 1.5 lakh rural post offices.
The initiative would play a crucial role in boosting the rural economy by transforming India Post into a major public logistics organisation, stated Sitharaman in her budget speech.
Another key highlight was the government's plan to provide identity cards and e-Shram portal registration for 1 crore gig workers, reported The Hindu.
While presenting the Union Budget 2025-26, she also introduced a scheme aimed at the socio-economic upliftment of urban workers.
She said that these workers would receive healthcare benefits under the Pradhan Mantri Jan Arogya Yojana (PM-JAY), benefiting nearly one crore individuals.
The PM SVANidhi scheme is set to be revamped, offering enhanced bank loans, UPI-linked credit cards with a Rs30,000 limit, and capacity-building support, it added.
Indian industry leaders have lauded the Budget 2023-24 as one with vision, structure and discipline that puts India on the path to become "the world champion".
Budget with structure discipline
Uday Kotak, CEO Kotak Mahindra Bank dubbed it as a 'Budget with vision, structure, discipline.'
"Immediate benefits to all individual earners. Continues measured path of fiscal consolidation. Sets foundation to increase every Indian's per capita income exponentially from 1.97 lakhs( 2400$).True to its name: 1st budget for Amritkaal," he remarked.
Harsh Goenka, chairman, RPG Enterprises:, said: "M'bap'pe of a budget, not 'Messi' at all. A budget that puts India on the path to become the world champion- all set to score goals on infra development, consumption and inclusion. A big boost for domestic manufacturing, job creation and ease of doing business! #Budget2023."
Tarun Sawhney, the Vice-chairman and MD, Triveni Engineering & Industries, said: "In the Union Budget 2023, the Government has provided imperatives for a strong stable economic environment focussed on driving growth and job creation. It has addressed the needs of the common people, the farmers, MSMEs, while emphasising the sustainability goals of the country."
Anil G Verma, executive director and CEO, Godrej & Boyce, said: "This is a balanced and inclusive budget which will provide further impetus to growth. The renewed thrust on investment in infrastructure will drive the productivity of our economy and generate employment."
"Our competitiveness in the global economy will also be improved through the thrust on research in fields like 5G services, AI and agriculture," he added.
Big nuclear energy mission
The budget has set a goal to generate 100GW of nuclear energy by 2047. As part of this plan, a Nuclear Energy Mission has been launched with a budget of Rs200 billion, reorted BBC.
The plan is to deploy five indigenous reactors by 2033 and amend laws, like the Civil Liability for Nuclear Damage Act, to realise goals and get more private sector participation in the sector.
Meanwhile, foreign direct investment limits for the insurance sector have been increased from 74% to 100%.
"This will aid foreign insurers' interest in investing in the growing Indian insurance market, where we expect strong premium growth to boost profitability," said Mohammed Ali Londe, Senior analyst at Moody's Ratings.
