Budget 2025-26: Empowering consumption, unleashing growth potential

The Union Budget for 2025-26 presented by Finance Minister Nirmala Sitharaman has  been a strategic masterstroke aimed at revitalizing India’s economy. The first step in this  direction is the exemption of income tax for individuals earning up to ₹12 lakh annually,  which is a bold and much-needed move. This will significantly boost disposable income  for the middle class, reigniting domestic consumption, and providing a shot in the arm for  the economy. However, the next frontier for economic transformation lies in empowering  high-income earners—those making over ₹1 crore annually—to fuel the next phase of  growth. 

Tax Relief for the middle class – A stimulus for consumption 

One of the most impactful announcements in the budget was the increase in the income  tax exemption limit for individuals earning up to ₹12 lakh. This tax relief will effectively  nullify income tax for those at this level and reduce the burden on higher-income groups  as well. The tax slab rejig will create more disposable income in the hands of the middle  class, providing the much-needed boost to consumption which had shown signs of  slowing in recent months. This is a critical step in reviving India’s consumption engine,  making this budget a solid foundation for sustained economic growth. 

The next target: Unleashing the potential of Rs 1 crore plus earners 

While the tax relief for the middle class is a commendable step, the government must  also turn its attention to high-income earners, particularly those making over ₹1 crore  annually. Currently, these individuals face an effective tax rate exceeding 40%, including  surcharges and cess. This high tax burden curtails their ability to invest in entrepreneurial  ventures and startups, which are vital drivers of innovation and job creation. 

Reducing their tax rates to be more in line with the corporate tax rate of 25% could be a game-changer. By doing so, the government would allow these high earners—who have  the resources and risk appetite—to channel their wealth into business ventures, startups,  and job-creating enterprises. This would help unlock the true animal spirits of the economy, fueling investment, innovation, and ultimately, double-digit growth. 

Infrastructure and capital expenditure – Building for the future

Alongside consumption, the budget continues to focus on capital expenditure, with ₹11.2  lakh crore allocated for infrastructure development. While this is slightly lower than the  ₹11.5 lakh crore in the previous fiscal year, it remains a crucial component of the  government’s long-term growth strategy. The government’s fiscal strategy reflects a  balanced approach—prioritizing both fiscal consolidation and growth-inducing  investments. 

Expenditure Secretary Manoj Govil rightly noted that ramping up capital expenditure by  25-30% annually is not sustainable in the long run. The government has, instead, opted  for a pragmatic approach, ensuring optimal utilization of resources while maintaining fiscal  discipline. Although the pace of capex spending may be slow initially due to the upcoming  elections, it is expected to accelerate in the latter half of 2025, resulting in increased  economic activity and higher consumption in subsequent quarters. 

GST Rationalization – A step toward greater efficiency 

The budget has also touched upon the need for GST rationalization. The Finance Minister  has committed to further discussions at the GST Council to bring sectors like energy and  real estate under the GST regime. This will not only improve tax compliance but also  reduce cascading taxes, contributing to higher efficiency and lower prices for businesses  and consumers alike. Such reforms can substantially augment economic growth in the  coming years. 

Regulatory reforms and ease of doing business 

The government’s continued efforts to improve the ease of doing business were  underscored by the proposal to set up a high-level committee to review non-financial  sector regulations, certifications, and licenses. This initiative will streamline business  operations, reduce the regulatory burden, and improve trust-based governance,  facilitating a more business-friendly environment. 

However, judicial reforms are crucial for complementing these regulatory changes.  Speeding up the judicial process and enhancing contract enforcement will significantly  improve the investment climate, encouraging both domestic and foreign investments. 

Fiscal discipline and growth outlook 

Despite the income tax cuts, the government has kept its fiscal deficit target at 4.4% of  GDP for 2025-26, down from 4.8% in 2024-25. This fiscal discipline reflects the 

government’s commitment to macroeconomic stability while keeping interest rates  manageable. 

The government’s projection of a 10% growth in receipts for 2025-26, alongside a 5%  increase in expenditure, suggests a fiscally responsible strategy aimed at achieving  growth without exacerbating inflation. 

Overall, the Union Budget 2025-26 strikes a fine balance between stimulating domestic  consumption and ensuring fiscal prudence. The tax relief for the middle class is a timely  intervention, but to unlock India’s true growth potential, the focus must now shift to high income earners. By lowering taxes for those earning over ₹1 crore annually, the  government can foster entrepreneurship, innovation, and job creation, propelling India  toward double-digit growth and transformative economic change. 

In parallel, infrastructure investments, GST rationalization, and regulatory reforms will lay  the groundwork for a sustained and inclusive growth story. With a pragmatic and forward looking approach, this budget sets the stage for India’s economic transformation in the  years to come.