Union Budget 2025-26: A Comprehensive Analysis

Introduction

The Union Budget 2025-26, presented by Finance Minister Nirmala Sitharaman on February 1, 2025, outlines the government’s vision for economic growth, inclusivity, and global positioning. The budget sets a roadmap for Viksit Bharat, with key focus areas being agriculture, MSMEs, investment, and exports. It also introduces major reforms in taxation, infrastructure, and fiscal policy.

Budget Theme: Driving Economic Growth with Four Key Engines

The Union Budget 2025-26 is built upon a robust framework that positions four key economic engines as the driving forces of growth. These engines—Agriculture, MSMEs, Investment, and Exports—are strategically supported by reforms as the fuel and inclusivity as the guiding spirit, all aimed at achieving the ambitious vision of Viksit Bharat (Developed India).

Agriculture – Ensuring Food Security and Rural Prosperity

Agriculture serves as the first engine of economic growth, focusing on self-reliance and modernization. Several key initiatives have been introduced:

• Prime Minister Dhan-Dhaanya Krishi Yojana: Aims to uplift 100 low-productivity districts through sustainable farming practices, improved irrigation, and enhanced credit availability.
• Aatmanirbharta in Pulses: A six-year program focusing on self-sufficiency in key pulses (Tur, Urad, Masoor) with procurement support from central agencies.
• Comprehensive Program for Fruits & Vegetables: Encourages production, processing, and efficient supply chains to meet growing consumer demand.
• National Mission on High-Yielding Seeds: Strengthens research and distribution of high-yield, climate-resilient seeds.
• Mission for Cotton Productivity: A five-year initiative supporting cotton farmers with advanced technology and improved farming practices.

MSMEs – Strengthening Small Businesses as Economic Drivers

Micro, Small, and Medium Enterprises (MSMEs) are recognized as the second engine of economic growth, contributing significantly to employment and exports. The budget introduces:

• Revised MSME Classification: Increases investment and turnover limits to help MSMEs scale operations.
• Enhanced Credit Guarantee: Expands loan coverage to encourage growth and innovation.
• Fund of Funds for Startups: Injects ₹10,000 crore into a new startup funding initiative.
• Support for Labour-Intensive Sectors: Special policies for footwear, leather, toys, and food processing industries to boost employment.

Investment – Boosting Infrastructure and Innovation

Investment, the third engine, focuses on people, economy, and innovation to create a resilient economic foundation. Key proposals include:

• Public-Private Partnerships in Infrastructure: Encourages states to develop infrastructure projects using PPP models.
• Urban Development & Smart Cities: Launch of an Urban Challenge Fund with ₹1 lakh crore to enhance city infrastructure and services.
• Power Sector Reforms: Strengthening electricity distribution and transitioning towards nuclear energy with a 100 GW development target.
• Maritime Development Fund: A ₹25,000 crore initiative for financing the shipping and logistics sector.
• PM Gati Shakti Data Access: Facilitating private sector participation in infrastructure projects through digital integration.

Exports – Expanding India’s Global Trade Footprint

Exports, as the fourth engine, aim to integrate India into global supply chains and boost foreign trade. Key measures include:

• Export Promotion Mission: A coordinated initiative involving multiple ministries to enhance trade competitiveness.
• BharatTradeNet: A digital trade facilitation platform for seamless international transactions.
• Global Capability Centres (GCCs): Promoting IT and business service hubs in Tier-2 cities.
• Improved Warehousing & Logistics: Enhancements in air cargo storage, streamlined customs, and upgraded port infrastructure.

The Supporting Pillars

• Reforms as the Fuel: The government continues to implement regulatory, taxation, and financial sector reforms to improve ease of doing business and global competitiveness.
• Inclusivity as the Guiding Spirit: The budget prioritizes Garib (poor), Youth, Annadata (farmers), and Nari (women), ensuring that economic growth benefits all sections of society.

With these strategic interventions, the Union Budget 2025-26 sets the stage for sustained economic expansion, job creation, and global leadership, ultimately aiming for a self-reliant and prosperous India.

Agriculture as the First Engine: Transforming India’s Rural Economy

The Union Budget 2025-26 prioritizes agriculture as the first engine of India’s economic growth, with a strong focus on increasing productivity, ensuring food security, and improving rural livelihoods. Several strategic initiatives have been introduced to modernize agriculture, enhance financial inclusion for farmers, and promote sustainability in allied sectors such as fisheries and cotton farming.

Prime Minister Dhan-Dhaanya Krishi Yojana

This newly launched program aims to revitalize 100 low-productivity agricultural districts by integrating modern farming techniques with improved resource allocation. Key focus areas include:

• Improving Crop Yield: Encouraging sustainable and diversified cropping patterns to enhance farm productivity.
• Post-Harvest Storage & Irrigation: Developing community-level warehouses and block-level irrigation networks to reduce wastage and water dependency.
• Credit & Financial Access: Expanding the availability of short- and long-term loans through government-backed schemes to boost farmers’ financial stability.

This initiative is expected to directly benefit 1.7 crore farmers by increasing productivity, resilience, and rural prosperity.

Mission for Aatmanirbhar Bharta in Pulses

Recognizing the growing domestic demand for pulses, the government has launched a six-year mission focusing on self-reliance in Tur, Urad, and Masoor pulses. The program includes:

• Procurement Guarantees: Central agencies such as NAFED and NCCF will procure pulses at remunerative prices, ensuring price stability for farmers.
• Climate-Resilient Seeds: Encouraging the cultivation of high-yield varieties that can withstand adverse weather conditions.
• Post-Harvest Management: Investment in storage infrastructure and supply-chain efficiency to reduce import dependency and stabilize market prices.

This initiative is set to increase pulse production significantly, ensuring affordability for consumers while empowering farmers.

National Mission on High Yielding Seeds

The government is emphasizing seed research and innovation by launching the National Mission on High Yielding Seeds, which will:

• Develop & Commercialize 100+ Climate-Resilient Seed Varieties: These varieties will be resistant to pests, droughts, and extreme weather conditions.
• Strengthen the Research Ecosystem: Collaboration with ICAR, agricultural universities, and private seed companies to enhance R&D efforts.
• Boost Commercial Seed Availability: Ensuring that improved seed varieties reach farmers through subsidies and distribution programs.

This mission aligns with India’s long-term agricultural sustainability goals, ensuring higher productivity and resilience against climate change.

Support for Fisheries and Cotton Farming

The budget recognizes the importance of fisheries and cotton farming as vital contributors to rural income and exports. Key initiatives include:

• Marine Fisheries Development in Andaman & Nicobar & Lakshadweep:
  • A comprehensive Blue Economy strategy to harness marine resources, improve deep-sea fishing infrastructure, and increase seafood exports.
  • Special focus on sustainable fishing practices and cold storage facilities to enhance value addition.
• Cotton Productivity Mission:
  • A five-year initiative to improve yield and quality in cotton farming.
  • Focus on Extra-Long Staple (ELS) cotton varieties to cater to the high-value textile sector.
  • Scientific & technological support for cotton farmers to increase per-acre productivity and reduce pesticide dependency.
• Makhana Board in Bihar:
  • To enhance production, processing, and marketing of Makhana (Fox Nuts), which is a high-value crop with growing global demand.
  • Encouraging Farmer Producer Organizations (FPOs) and cooperatives for better price realization.

These initiatives aim to increase income for rural communities, boost exports, and ensure India’s leadership in agricultural trade.

Enhanced Credit & Infrastructure Support for Farmers

• Kisan Credit Card (KCC) Limit Increased from ₹3 Lakh to ₹5 Lakh
  • This move empowers 7.7 crore farmers, including fishermen and dairy farmers, by increasing access to affordable credit.
  • Helps farmers invest in better inputs, mechanization, and post-harvest activities.
• New Urea Plant in Assam:
  • A 12.7 lakh metric ton capacity plant in Namrup, Assam, to reduce dependency on urea imports and ensure stable fertilizer supply.
  • Supports the government’s goal of agricultural self-reliance.
•  India Post as a Rural Economic Catalyst:
  • 1.5 lakh post offices in rural India will be transformed into financial and logistics hubs.
  • India Post will offer credit services to micro-enterprises, cash transactions, and digital services, boosting the rural economy.
  • Will also play a major role in public distribution systems (PDS), microinsurance, and e-commerce delivery services for farmers and artisans.

MSMEs as the Second Engine: Driving Growth, Innovation, and Employment

The Union Budget 2025-26 positions Micro, Small, and Medium Enterprises (MSMEs) as the second engine of economic growth, acknowledging their role in employment generation, domestic manufacturing, and exports. With over 5.7 crore MSMEs contributing 36% of India’s manufacturing output and 45% of exports, the government has announced a series of transformative measures aimed at credit expansion, sectoral development, and technological upgradation to further boost this crucial sector.

Revised MSME Classification: Enabling Growth Without Losing Benefits

To ensure MSMEs can scale operations while continuing to receive government support, the budget enhances the classification criteria as follows:

• Investment limit increased by 2.5x – Encouraging capital expansion and modernization.
• Turnover limit increased by 2x – Enabling businesses to expand market reach without losing MSME benefits.
• Greater economies of scale – This revision will help MSMEs compete globally while continuing to enjoy incentives, tax rebates, and funding support.

By loosening the growth constraints, this move will empower over 1 crore MSMEs to enhance productivity and competitiveness.

Credit and Funding Support: Expanding Financial Inclusion

Recognizing that access to finance is critical for MSME growth, the government has introduced multiple measures to increase liquidity, ease credit availability, and support first-time entrepreneurs.

• 1. Enhanced Credit Guarantee Scheme
  • The credit guarantee cover for MSMEs has been increased to ₹10 crore, ensuring greater access to collateral-free loans.
  • This initiative is expected to unlock an additional ₹1.5 lakh crore in loans over the next five years, supporting business expansion.
• Expansion of Fund of Funds for Startups
  • An additional ₹10,000 crore has been injected into the Fund of Funds for Startups, encouraging private investment in innovative MSMEs.
  • This will help early-stage and growth-stage startups secure risk capital and scale faster.
• Special Credit Card for Micro-Enterprises
  • A ₹5 lakh credit card scheme has been introduced for micro-enterprises registered on the Udyam portal.
  • 10 lakh such credit cards will be issued in the first year, helping small businesses access working capital without bureaucratic hurdles.
• New Scheme for First-Time Entrepreneurs
  • A targeted loan scheme for 5 lakh first-time entrepreneurs, particularly women, Scheduled Castes (SCs), and Scheduled Tribes (STs).
  • Term loans up to ₹2 crore will be provided with favorable repayment terms.
  • This scheme builds on the success of Stand-Up India and aims to increase financial independence for marginalized communities.

These measures de-risk lending for banks, encourage entrepreneurship, and provide stable financing options for MSMEs and startups.

Sectoral Focus: Boosting Key Industries for Employment and Exports

The budget prioritizes strategic sectors that can generate large-scale employment and enhance India’s global competitiveness.

• Leather & Footwear Industry
  • Focus Product Scheme to boost productivity, innovation, and competitiveness.
  • Aims to generate 22 lakh new jobs.
  • Support for design, component manufacturing, and machinery to strengthen the entire value chain.
  • Promotes non-leather and leather-based footwear exports, enhancing India’s presence in the global market.
• Toy Industry: Making India a Global Hub
  • Expanding on the National Action Plan for Toys, a new scheme is introduced to position India as a major toy-exporting country.
  • Emphasis on cluster-based manufacturing, skill development, and research & innovation in toy design.
  • Support for sustainable and high-quality toy production, aligning with India’s “Vocal for Local” and “Make in India” vision.
• Food Processing Industry
  • National Institute of Food Technology, Entrepreneurship & Management to be established in Bihar.
  • This Eastern-region-focused initiative will:
    • Enhance value addition for farm produce, increasing farmers’ income.
    • Promote food innovation, processing techniques, and supply-chain efficiency.
    • Generate employment opportunities for youth in food technology and agribusiness.
• Manufacturing Mission: Strengthening Make in India
  • A National Manufacturing Mission has been launched to provide a structured policy roadmap for MSMEs in manufacturing.
  • The mission focuses on:
    • Ease and cost of doing business – Streamlining compliance and reducing regulatory burden.
    • Developing a future-ready workforce – Skill enhancement to meet modern industry requirements.
    • Technological support for MSMEs – Digitalization, automation, and Industry 4.0 adoption.
    • Encouraging clean-tech industries – Promoting EV battery production, solar panels, wind turbines, and green hydrogen technology.

This initiative aims to increase India’s global market share in advanced manufacturing while ensuring sustainability and environmental responsibility.

Strengthening Digital & Financial Infrastructure for MSMEs

• India Post’s Transformation as a Public Logistics and Finance Hub
  • 1.5 lakh rural post offices will be modernized to serve as logistics hubs for MSMEs.
  • 2.4 lakh Dak Sevaks will help deliver financial services, acting as a bridge between MSMEs and banking institutions.
  • Faster and more cost-effective logistics will empower artisans, weavers, and micro-entrepreneurs to expand e-commerce operations.
• Support for E-Commerce & Digital Payments
  • Encouragement of MSMEs to integrate with ONDC (Open Network for Digital Commerce) to increase digital visibility and reduce dependency on foreign platforms.
  • Subsidized digital payment solutions to help small businesses transition to cashless transactions.

Investment as the Third Engine: Strengthening Human Capital, Infrastructure, and Innovation

The Union Budget 2025-26 recognizes investment as the third major engine of economic growth, focusing on three critical areas: people, infrastructure, and innovation. By channeling funds into human resource development, large-scale infrastructure projects, and cutting-edge technological advancements, the government aims to create a self-reliant and globally competitive economy.

Investing in People: Enhancing Education, Healthcare, and Employment

A strong economy is built on the foundation of skilled human capital. This budget introduces major investments in education, healthcare, and social security to empower individuals and ensure long-term economic sustainability.

• Expansion of STEM Education through Atal Tinkering Labs
  • The government will establish 50,000 Atal Tinkering Labs in schools over the next five years.
  • These labs will foster scientific curiosity, problem-solving skills, and innovation among students from an early age.
  • This initiative aligns with the Make for India, Make for the World vision, ensuring that the next generation is equipped for high-tech industries.
• Strengthening Medical Education and Healthcare Infrastructure
  • 10,000 additional seats will be created in medical colleges and hospitals to address the shortage of healthcare professionals.
  • A total of 75,000 medical education seats will be added over the next five years.
  • The expansion will enhance access to quality healthcare services and improve the doctor-to-patient ratio in India.
• Establishment of Day Care Cancer Centres
  • 200 district hospitals will be equipped with Day Care Cancer Centres to provide early diagnosis and treatment.
  • This initiative aims to reduce the burden on tertiary care hospitals, ensuring faster and more accessible cancer treatment for patients across the country.
• Social Security for Gig Workers
  • Gig workers will be registered under the e-Shram portal, ensuring they are recognized within the formal workforce.
  • They will be provided healthcare coverage under PM Jan Arogya Yojana, addressing health risks faced by platform-based and freelance workers.
  • This initiative formalizes the gig economy, providing millions of workers with social security benefits and financial inclusion.

Investing in Infrastructure: Strengthening Core Sectors for Growth

Infrastructure development remains a key priority in the budget, with a strong emphasis on transportation, energy, water resources, and logistics. The government has announced massive capital investments to modernize infrastructure and support long-term economic expansion.

• 1. ₹1.5 Lakh Crore for State Infrastructure Development
  • The government will provide interest-free 50-year loans worth ₹1.5 lakh crore to states.
  • This funding will be used for capital expenditure projects, such as urban development, transport networks, and energy infrastructure.
  • The initiative is designed to stimulate economic activity at the state level and generate employment opportunities.
• Asset Monetization Plan for Infrastructure Expansion
  • The Asset Monetization Plan 2025-30 will unlock ₹10 lakh crore in investments for new projects.
  • The plan will involve leasing public assets such as highways, railways, airports, and power grids to private investors.
  • This initiative will ensure that public assets are leveraged efficiently, providing funds for fresh infrastructure development.
• Jal Jeevan Mission Extended Until 2028
  • Since 2019, 15 crore rural households have been provided with tap water connections under the Jal Jeevan Mission.
  • To ensure 100% household water coverage, the scheme has been extended until 2028 with an enhanced budgetary allocation.
  • The focus will shift to quality infrastructure, operation and maintenance (O&M), and sustainable water supply management.
• Nuclear Energy Mission: Aiming for 100 GW by 2047
  • Recognizing nuclear energy as a critical component of India’s clean energy transition, the government has announced the Nuclear Energy Mission.
  • The goal is to develop 100 GW of nuclear power capacity by 2047, reducing dependence on fossil fuels.
  • The plan includes partnerships with the private sector, along with regulatory amendments to encourage investment in Small Modular Reactors (SMRs).
• Maritime Development Fund for Shipping and Port Expansion
  • A ₹25,000 crore Maritime Development Fund will be established to provide long-term financing for the shipping and logistics sector.
  • The fund will be partially financed by the government (49%), with the rest sourced from ports and private investors.
  • The objective is to enhance India’s maritime infrastructure, making the country a global leader in shipbuilding and port operations.
• Greenfield Airport in Bihar and Western Koshi Canal Project
  • A new Greenfield Airport will be developed in Bihar, improving regional connectivity and boosting the state’s economic potential.
  • The Western Koshi Canal Project in the Mithilanchal region will provide irrigation benefits to over 50,000 hectares of farmland, supporting agricultural productivity in Bihar.

Investing in Innovation: Strengthening Research & Development

The budget prioritizes technological advancement and innovation, with significant investments in private-sector-led R&D, deep tech, and geospatial intelligence.

• ₹20,000 Crore for Private-Sector-Driven R&D
  • To promote cutting-edge research and innovation, the government has allocated ₹20,000 crore for private-sector-driven R&D.
  • This investment will catalyze advancements in high-tech industries, strengthening India’s global competitiveness in innovation-led sectors.
• Deep Tech Fund of Funds
  • A new Deep Tech Fund of Funds will be created to support emerging technologies, including Artificial Intelligence (AI), robotics, quantum computing, and space technology.
  • The initiative aims to promote domestic startups in high-tech fields, ensuring that India remains at the forefront of technological breakthroughs.
• National Geospatial Mission for Urban Planning and Land Records Modernization
  • The National Geospatial Mission will develop foundational geospatial infrastructure to support:
    • Urban planning and smart city development.
    • Modernization of land records, reducing disputes and streamlining property transactions.
    • Advanced mapping technologies to aid infrastructure development and disaster management.
  • This mission will facilitate data-driven decision-making, improving efficiency in governance and infrastructure projects.

Exports as the Fourth Engine: Expanding India’s Global Trade Footprint

The Union Budget 2025-26 prioritizes exports as the fourth engine of economic growth, recognizing the need to increase India’s share in global trade, strengthen domestic manufacturing, and integrate with global supply chains. With an emphasis on digital trade facilitation, MSME support, and infrastructure development, the government has introduced key initiatives aimed at boosting export competitiveness and reducing trade barriers.

The Export Promotion Mission is a strategic initiative to enhance India’s export capabilities across multiple sectors. The mission will be driven jointly by the Ministries of Commerce, MSME, and Finance, ensuring a coordinated approach to export growth.

Sectoral Targets for Manufacturing and Global Supply Chain Integration

• The government will set specific sectoral targets for high-potential export industries, such as textiles, electronics, pharmaceuticals, automobile components, and green energy solutions.
• Special focus will be given to increasing domestic manufacturing capacity in key areas where India has a competitive advantage, such as:
  • Semiconductors and electronics to strengthen supply chains disrupted by global uncertainties.
  • Pharmaceuticals and vaccines to establish India as a global healthcare leader.
  • Renewable energy components such as solar panels, wind turbines, and green hydrogen technology.
• Efforts will be made to reduce import dependency on raw materials and encourage local value addition to boost export margins.

BharatTradeNet – A Unified Digital Platform for Trade Facilitation

• The budget introduces BharatTradeNet, a comprehensive digital public infrastructure for international trade.
• This platform will serve as a one-stop solution for exporters, offering:
  a. Seamless trade documentation to reduce bureaucratic delays.
  b. Integration with global trade standards to ensure compliance with international regulations.
  c. Easy access to export financing through banks and financial institutions.
• BharatTradeNet will complement the Unified Logistics Interface Platform (ULIP), ensuring efficient tracking and movement of goods across borders.
• The platform will also be aligned with global best practices in customs clearance and digital trade facilitation, making exports more efficient.

Support for MSME Exporters to Overcome Non-Tariff Barriers

• MSMEs contribute nearly 45% of India’s exports, yet they face significant challenges in meeting international standards, certifications, and compliance requirements.
• The government will support MSME exporters by:
  a. Providing technical assistance and training to meet global quality standards.
  b. Offering cross-border factoring and export credit solutions to ease financial constraints.
  c. Addressing regulatory bottlenecks and trade barriers through diplomatic and trade agreements.
• Special export facilitation groups will be formed, consisting of senior government officials, trade bodies, and industry leaders to assist MSMEs in navigating non-tariff barriers.

Warehousing Infrastructure Upgrades for Air Cargo and Perishable Goods

• Improving logistics and storage capacity is critical for boosting exports, especially for high-value and perishable goods like agricultural products, seafood, and pharmaceuticals.
• The budget allocates funding for the modernization of warehousing and cargo handling facilities at airports and seaports, including:
  a. Cold storage units to ensure freshness and quality of perishable goods.
  b. Automated cargo screening systems to reduce clearance time and enhance security.
  c. Customs protocol simplifications to ensure faster processing of air cargo shipments.
• These measures will enhance India’s logistics efficiency, making exports more competitive in global markets.

Reforms as the Fuel: Enabling Sustainable Economic Growth

The Union Budget 2025-26 positions reforms as the fuel for India’s economic transformation, focusing on taxation, regulatory policies, and financial sector modernization. These reforms are designed to simplify compliance, attract investment, and enhance the ease of doing business, ensuring that India remains competitive in the global economy.

Tax Reforms: Simplifying Compliance and Enhancing Transparency

Taxation remains a key area of reform, with the government focusing on streamlining tax administration, reducing litigation, and ensuring efficient tax collection.

• Introduction of a New Income Tax Bill
  • The government has proposed a new Income Tax Bill aimed at simplifying tax laws, reducing complexities, and ensuring greater transparency.
  • The new bill will focus on:
    • Simplified tax structures to improve ease of compliance.
    • Clearer legal provisions to reduce tax-related litigation.
    • Greater taxpayer certainty, reducing ambiguities in interpretation.
  • The objective is to create a modern, efficient, and business-friendly tax system that aligns with global best practices.
• Faceless Assessment and Fast-Tracked Refunds
  • Faceless assessment will continue to be a key reform in tax administration, ensuring:
    • Elimination of physical interactions between taxpayers and officials, reducing chances of corruption.
    • Objective and technology-driven tax assessments, improving transparency.
    • Faster resolution of tax disputes, benefiting businesses and individuals.
  • The government will also accelerate income tax refunds, reducing delays and improving liquidity for taxpayers.
• Increase in FDI Limit for the Insurance Sector
  • The Foreign Direct Investment (FDI) limit in insurance has been raised from 74% to 100%, subject to:
    • Full reinvestment of premium earnings within India.
    • Simplified regulatory processes to encourage foreign participation.
  • This move is expected to:
    • Attract foreign capital, boosting the insurance sector.
    • Enhance competition and innovation, leading to better products and services.
    • Expand insurance penetration, increasing coverage for citizens.
• Grameen Credit Score for Rural Financial Inclusion
  • A Grameen Credit Score framework will be introduced by Public Sector Banks to:
    • Improve credit access for self-help groups (SHGs) and rural entrepreneurs.
    • Help banks assess loan eligibility based on rural borrowers’ financial behavior.
    • Reduce dependency on informal credit sources, making rural lending more structured.
  • This initiative aims to enhance financial inclusion and rural economic growth.

Regulatory Reforms: Creating a Business-Friendly Environment

The government is implementing major regulatory reforms to reduce bureaucratic hurdles, attract investments, and make India a global hub for business and innovation.

• Investment Friendliness Index for States
  • A new Investment Friendliness Index will be introduced to:
    • Rank Indian states based on ease of doing business.
    • Encourage healthy competition among states to improve regulatory frameworks.
    • Provide investors with a clear picture of business conditions across regions.
  • This index will consider:
    • Infrastructure quality.
    • Ease of land acquisition.
    • Regulatory efficiency and speed of approvals.
    • Investor support mechanisms.
• High-Level Committee for Regulatory Review: There will be a High-Level Committee on Regulatory Reforms to:
  • Review outdated and redundant regulations that slow down economic activity.
  • Simplify business licensing, certifications, and compliance requirements.
  • Strengthen trust-based economic governance, minimizing government intervention where unnecessary.
  • The committee will submit recommendations within one year, leading to significant policy changes.
• Jan Vishwas Bill 2.0: Decriminalizing Business Laws
  • Jan Vishwas Bill 2.0 will be introduced to decriminalize over 100 provisions across various laws.
  • The bill will:
    • Replace criminal penalties with civil fines for minor business infractions.
    • Reduce compliance burden, making it easier for businesses to operate.
    • Encourage entrepreneurship by eliminating fears of harsh legal repercussions for minor regulatory lapses.
  • This initiative builds on the Jan Vishwas Act 2023, further enhancing business confidence and investor sentiment.

Fiscal Policy and Taxation: Strengthening Economic Stability and Growth

The Union Budget 2025-26 outlines a comprehensive fiscal policy aimed at ensuring financial discipline, promoting economic expansion, and providing tax relief to individuals and businesses. The government’s approach focuses on fiscal deficit management, rationalization of indirect taxes, and direct tax reforms to enhance compliance and stimulate investment.

Fiscal Targets: Managing Deficit and Borrowings

The government has set fiscal consolidation as a priority while maintaining adequate public expenditure for infrastructure and welfare programs.

• Fiscal Deficit Target for 2025-26
  • The fiscal deficit is projected at 4.4% of GDP, continuing the trend of gradual deficit reduction.
  • This is a part of the government’s medium-term fiscal roadmap to maintain financial stability while supporting economic growth.
  • Fiscal discipline is aimed at ensuring macroeconomic stability, controlling inflation, and maintaining investor confidence.
• Market Borrowings Strategy
  • The government has planned market borrowings of ₹14.82 lakh crore to finance the fiscal deficit.
  • Net market borrowings from dated securities are estimated at ₹11.54 lakh crore.
  • The remaining fiscal gap will be funded through small savings and other sources, ensuring liquidity in the economy without excessive reliance on external debt.

Indirect Taxation: Encouraging Domestic Manufacturing and Trade

The budget introduces rationalization of customs duties to promote domestic industries and reduce import costs for critical goods.

• Simplification of Customs Duty Structure
  • The government continues its customs tariff simplification efforts by:
    • Reducing duty slabs for a streamlined tax structure.
    • Eliminating duty anomalies that affect domestic manufacturers.
    • Ensuring that import duties align with India’s Make in India and export promotion goals.
• Reduction of Duties on Critical Sectors
  • Duty reductions on critical minerals used in advanced manufacturing and clean energy technologies.
  • Lower tariffs on electronics components, supporting India’s ambition to become a global hub for semiconductor and mobile phone production.
  • Tax relief on life-saving drugs, ensuring affordable healthcare for patients suffering from critical illnesses such as cancer and rare diseases.

These measures aim to boost domestic production, reduce the cost of essential imports, and encourage industrial expansion.

Direct Taxation: Easing Burden on Individuals and Businesses

The budget introduces several reforms in direct taxation to provide relief to individuals, promote entrepreneurship, and enhance investment.

• New Income Tax Slabs
  • The new tax regime offers zero tax for incomes up to ₹12 lakh, benefiting middle-class taxpayers and salaried professionals.
  • For salaried taxpayers, the tax-free limit is extended to ₹12.75 lakh, including a standard deduction of ₹75,000.
  • This substantially reduces the tax burden and is expected to boost household savings and consumption.
• Higher Tax Deductions for Senior Citizens and Salaried Individuals
  • The tax deduction on interest income for senior citizens has been doubled from ₹50,000 to ₹1 lakh, ensuring better financial security for retirees.
  • The annual tax deduction limit for rental income has been raised from ₹2.4 lakh to ₹6 lakh, benefiting individuals earning rental income.
  • These measures aim to provide relief to fixed-income groups while encouraging spending and investment.
• Tax Benefits for Startups Extended Till 2030
  • The tax exemption period for startups has been extended by five years, until 2030.
  • Startups incorporated before April 1, 2030, will continue to enjoy tax benefits, encouraging more entrepreneurial ventures.
  • This extension fosters innovation, attracts venture capital investments, and supports job creation in high-growth sectors.
• Tonnage Tax for Inland Vessels
  • The tonnage tax scheme, which currently applies only to sea-going ships, is now extended to inland vessels.
  • This move aims to boost water transport infrastructure, promote inland shipping, and reduce logistics costs.
  • Inland waterways provide a cost-effective and environmentally friendly alternative to road and rail transport, and this incentive will further support the sector’s growth.

Conclusion

The Union Budget 2025-26 lays out a comprehensive economic roadmap focused on sustained growth, financial discipline, and structural reforms. By leveraging four key engines—Agriculture, MSMEs, Investment, and Exports—the budget aims to create a self-reliant, inclusive, and globally competitive economy. Strategic investments in education, healthcare, infrastructure, and innovation underscore the government’s commitment to long-term economic resilience.

The fiscal strategy maintains a manageable deficit while ensuring adequate public expenditure for infrastructure and welfare initiatives. Tax reforms simplify compliance, reduce litigation, and provide relief to individuals and businesses, fostering a growth-friendly environment. Regulatory changes, such as the Investment Friendliness Index and Jan Vishwas Bill 2.0, further streamline business operations and attract global investors.

By integrating technological advancements, financial inclusion, and sustainable development, the budget seeks to enhance domestic production, increase global trade participation, and strengthen economic fundamentals. With a balanced approach between fiscal consolidation and economic expansion, the government sets a strong foundation for India’s aspiration to become a $10 trillion economy in the coming years.

References: Union Budget 2025