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On February 1, 2025, Finance Minister Nirmala Sitharaman presented the Union Budget 2025, marking her eighth budget presentation. This budget outlined key strategies for taxation, government expenditure, and economic growth for the fiscal year 2025-26 amidst significant economic challenges. Despite only a six-month gap between her seventh and eighth budgets, the Indian economy has faced major hurdles during this period.

At the time of the seventh budget’s presentation in July 2024, India was experiencing strong economic momentum, with a GDP growth rate of 8.2% for 2023-24, foreign exchange reserves nearing $700 billion, and a buoyant stock market. The Reserve Bank of India (RBI) also declared a dividend of

Rs.2.11 lakh crore for the government. However, the current economic indicators paint a less optimistic picture. The Ministry of Statistics projects India’s GDP growth rate to slow to 6.4% for 2024-25—the lowest in four years since the end of the COVID-19 pandemic. Other challenges, including declining productivity, reduced consumption, high food inflation, rupee depreciation, banking sector liquidity concerns, weak corporate performance in Q2FY25 and Q3FY25, and a stock market downturn, further complicate the economic landscape.

Additionally, tensions have emerged between the Indian government and the RBI regarding interest rate policies. While the government has advocated for lower interest rates to boost economic growth and facilitate affordable credit, former RBI Governor Shaktikanta Das prioritized inflation control by maintaining high interest rates. A consensus was only reached after Sanjay Malhotra took over as RBI Governor and the Monetary Policy Committee decided to reduce the repo rate by 25 basis points (bps). However, in discussions with economists, Malhotra emphasized that lowering interest rates alone would not suffice to revive the economy—effective government interventions were also necessary. Against this backdrop, the budget was expected to introduce crucial reforms to advance India’s vision of becoming a developed nation. The key provisions are discussed below.

Revenue Side Analysis

The budget projects that India’s nominal GDP will grow at 10.1% in 2025-26, increasing from Rs.324.11 lakh crore in 2024-25 to Rs.356.97 lakh crore. This rate is reminiscent of the 10-11% targets set in the 1990s, though still lower than the 13-14% growth rates seen in the 2000s. Adjusted for inflation (forecasted at 4% in the Economic Survey), the real GDP growth rate is estimated at 6.1%, even lower than the 6.4% projected for 2024-25, indicating prolonged economic challenges.

The Finance Minister has set ambitious tax collection targets, expecting Rs.28.37 lakh crore in direct and indirect taxes for 2025-26. Direct taxes are projected to generate Rs.14.38 lakh crore from individuals and Rs.10.82 lakh crore from corporations. This highlights a significant tax burden on individual taxpayers, contradicting government claims of prioritizing the middle class. Meanwhile, GST collections are estimated at Rs.11.78 lakh crore, exceeding corporate tax receipts, suggesting that consumers bear a greater tax burden than businesses. This trend raises concerns about tax system equity and fairness.

A comparison with the previous year’s budget figures underscores these disparities. In Budget 2024, corporate tax collection was targeted at Rs.10.20 lakh crore, direct taxes at Rs.11.87 lakh crore, and GST at Rs.10.61 lakh crore. However, revised estimates for 2025 indicate a shortfall of Rs.40,000 crore in corporate tax revenue, while income tax collections from individuals exceeded projections by Rs.70,000 crore. High GST collections remain consistent with targets. These trends reveal a tax structure that disproportionately burdens individuals, who also grapple with stagnant wages, rising unemployment, and inflation.

In response, the government has introduced income tax relief, driven by both political and economic considerations. Politically, this move aims to prevent potential unrest similar to recent protests in Bangladesh. Economically, the Economic Survey 2025 highlights that corporate profits in India are at a 15-year high, while the earnings of salaried and self-employed individuals have fallen below pre-pandemic levels—men’s earnings have dropped by 6.4% and women’s by 12.5%. The income tax relief is intended to boost purchasing power and stimulate economic growth.

On the borrowing front, the government’s target of Rs.15.68 lakh crore in borrowings for 2025-26 is concerning, as it will push total central government debt beyond ` 200 lakh crore. This raises alarms over future debt servicing obligations and potential tax hikes. To reduce dependence on debt financing, the government must explore alternative revenue sources, such as tax reforms, increased capital expenditure, and efficient asset utilization.

Expenditure Side Analysis

The budget documents reveal a decline in government expenditure as a percentage of GDP—from 14.6% in 2024-25 to 14.2% in 2025-26. Moreover, actual spending in 2024-25 fell short by ` 1 lakh crore compared to initial allocations, with revised estimates reducing total expenditure from Rs.48.20 lakh crore to Rs.47.16 lakh crore. Key sectors, including food subsidies, petroleum, agriculture, education, rural development, and urban development, have been affected by spending cuts. For instance, the food subsidy allocation was initially Rs.2.05 lakh crore but was later reduced by Rs.7,830 crore. The 2025-26 budget proposes a slightly lower allocation of Rs.2.03 lakh crore, falling short of last year’s estimates.

Similarly, crucial schemes like the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and Pradhan Mantri Kisan Samman Nidhi (PM-Kisan) have not received any funding increases, disappointing rural laborers and farmers. Government capital expenditure has increased only marginally by Rs.10,000 crore, reaching Rs.11.21 lakh crore, which may be insufficient to drive substantial economic growth. Previously, subdued private consumption and weak private investment were offset by higher government capital spending; however, the latest budget allocations may not sustain this trend.

Additionally, the government has increased allocations under certain heads by diverting funds from emergency reserves, particularly in centrally sponsored schemes and state government allocations. This raises concerns about the government’s ability to respond to future crises, potentially increasing state-level debt burdens.

Conclusion

The budget primarily aims to control the fiscal deficit through increased tax revenue, reduced spending, and debt management. However, given the current economic challenges, this approach may fail to stimulate employment, boost consumer spending, or attract private investment. By prioritizing fiscal prudence over economic growth and social welfare, the government risks delaying much-needed relief for the general public. As a result, the country may have to wait another year for a truly pro-people budget.